A gavel and a name plate with the engraving Insolvency
Credit: A gavel and a name plate with the engraving Insolvency
Parliament introduced legislation late last week that is set to overhaul the insolvency framework, making it easier for small businesses to restructure or wind up in the event that they face financial challenges.
The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed this development, that as is in line with the recommendations her office made in July.
“These landmark reforms will be a game-changer for small businesses, particularly those that have been heavily impacted by the COVID crisis,” Carnell said. “Instead of finding themselves on an express train to winding up with no control over the process, these changes will ensure small businesses will have the option to turn their business around, giving them a fighting chance to survive.
“Crucially, by moving to the ‘debtor in possession’ model, small businesses can restructure their debts while remaining in control of their business,” Carnell added. “For those businesses that sadly need to wind up, the liquidation process will be simpler, faster and cheaper.”
The Ombudsman noted that the current pandemic has driven many small businesses to the brink, citing recent modelling by Deloitte Access Economics which estimated about 240,000 small businesses are at risk of failure.
“This is exactly why small businesses need to sit down with their trusted and accredited financial adviser for a viability assessment as a matter of urgency,” Carnell said. “It is this critical first step that small businesses would be more likely to make if the government adopted our recommendation to establish a small business viability program, providing small business owners facing financial stress with a grant valued up to $5000 to access tailored advice on the state of their business.”
The ABFEO warned that many small businesses with cashflow issues, compounded by falling revenue, do not seek out professional advice due to its prohibitive cost, as situation she described as devastating for businesses, their staff and families.
“Ultimately, this legislation represents enormous progress and if passed, the new insolvency process will be available to small businesses from 1 January 2021,” Carnell said. “Crucially, this will give otherwise viable small businesses a chance to recover, preventing a wave of unnecessary insolvencies.”