THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the Federal Government had "thrown struggling small businesses a lifeline today" by announcing plans to overhaul insolvency rules that had dogged Australia for decades.

The new Federal rules, announced by Treasurer Josh Frydenberg, make it easier for small businesses to restructure or wind up and are in line with the recommendations outlined in the Insolvency Practices Inquiry final report handed down by the Ombudsman in July this year.  

“It’s clear the Federal Government has heard our concerns that current insolvency practices do not work for small and family businesses,” Ms Carnell said.

“Our July report found that in many cases, small businesses were not getting the chance to turn their business around and instead finding themselves on an express train to winding up with zero control over the process," she said. 

"The changes announced today by Treasurer Josh Frydenberg will go a long way to fixing that problem.

"The reforms will allow small businesses to restructure their debts while remaining in control of their business and for those businesses that sadly do need to wind up, the liquidation process will be changed to make it quicker and easier.

“We also welcome protections for small businesses that want to restructure, but are unable to get immediate access to an insolvency practitioner.

“We know the COVID crisis, which has come on the back of devastating natural disasters, has driven many small businesses to the brink," Ms Carnell said.

“ASIC data shows insolvencies are tracking at close to 50 percent below 2019 levels, which goes to show the extent to which government stimulus and protection measures are keeping businesses on life support, including businesses that have not been viable for some time.    

“Deloitte Access Economics modelling estimates about 240,000 small businesses are at risk of failure. This highlights the need for small businesses to sit down with their trusted financial adviser for a viability assessment. Unfortunately a measure to address this critical first step was missing from today’s announcement.

“That’s why my office continues to recommend the establishment of a small business viability program, where small business owners facing financial stress can obtain a voucher valued up to $5,000 to access tailored advice on the state of their business," Ms Carnell said.

“The voucher would ensure small businesses have access to the expertise they need to judge business viability.

“Unfortunately small businesses with cash flow issues, compounded by falling revenue, may not seek out professional advice because it’s deemed to be unaffordable. This could prove to be devastating for the business owner and their family.

“We know the sooner a small business owner experiencing financial stress seeks assistance from an accredited professional, the better the outcome.”

Today’s announcement will support the Federal Government’s temporary extension of insolvency and bankruptcy protections to December 31, 2020.

These regulations reduce the threat of creditors taking action against a small business impacted by trading restrictions and extend temporary relief for directors from any personal liability for trading while insolvent. 

“Crucially, these measures give otherwise viable small businesses more time to recover, preventing a wave of unnecessary insolvencies.”www.asbfeo.gov.au

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THE LAW COUNCIL of Australia has welcomed the Federal Government's tabling of the Australian Law Reform Commission's (ALRC) review of the nation's corporate criminal responsibility regime, but is urging the Parliament to take a cautious approach when considering fundamental principles of criminal law.

Contained in the ALRC review are recommendations that would make a corporate accused guilty if any officer, employee, or agent of the corporation committed an offence, while acting within the actual or apparent scope of their authority. The Law Council said under the recommendations, the person need not hold office as a director or a ‘high managerial agent’, whose responsibilities may be fairly assumed to represent the body corporate’s policy, as is presently required. 

Unless the corporation could prove that it took reasonable precautions to prevent the individual officer from committing the crime, it would be guilty.

Law Council of Australia president Pauline Wright said policymakers should approach this recommendation with caution.

"Criminal convictions carry serious consequences, both for bodies corporate and the people who work within them," Ms Wright said.

"The ALRC’s recommendations in this area are not consistent with the general criminal law principles applicable to the most serious offences, including that an intention to commit the crime must be proven. The Law Council urges caution in fundamental changes to general principles of criminal responsibility governing corporate attribution.

"If these recommendations were accepted by Parliament it could lead to corporations attracting criminal convictions for the misdeeds of relatively junior employees, which could have severe, unintended, and unnecessary consequences for many innocent parties.

"It is important to note these recommended amendments would not only touch the large corporations at the top end of town. They may place a disproportionate burden on small businesses and charities, many of which operate as corporations," Ms Wright said.

"A guiding principle of the Australian Criminal Code was that corporations should be treated no more or less favourably than natural persons, and that principles of corporate criminal responsibility should be as close as possible to the general principles that underpin the criminal law as it applies to natural persons. The Law Council continues to support that principle."

www.lawcouncil.asn.au

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THE CHANGE to the JobKeeper reference date from March 1 to July 1, 2020, effective from August 3, will require all enrolled employers for JobKeeper to retest employee eligibility, warns the Institute of Public Accountants (IPA).

“Some employees did not meet the previous criteria but may now be eligible,” IPA chief executive officer, Andrew Conway said.

“The ‘one-in, all-in’ rule, compels employers to include any new employees, engaged after March 1, but before July 1, 2020, that meet the other eligibility conditions as part of the JobKeeper scheme. 

“The IPA is urging employers to very quickly assess potential new eligible employees, send nomination forms, and importantly, top-up employees’ wages where necessary to meet the established wage condition of $1,500 per fortnight.  This means employers must have the cash to pay. 

"Failure to do so will leave those employers exposed to significant penalties under the Fair Work Act because of the ‘one-in, all-in’ rule.

Potential candidate employees who may now be eligible include:

• Non-casuals (full-time or part-time employees) who are on the books before July 1, 2020;
• Casuals who did not meet the definition of a long-term casual employee by March 1, but have since become long-term casual employees by July 1;
• Employees who did not qualify on March 1, due to their age or visa status but have since become 16 to 18 years of age and meet the independence criteria and study or have obtained the necessary visa.

“Employees that became eligible from July 1, 2020, require an employer on the JobKeeper scheme to provide notice to those new employees (per the existing notice requirements within seven days of the commencement of the legislative instrument which commenced on August 15, 2020). This effectively means giving employers until this coming Friday, with no time to waste.

“The good news, however, is that for the fortnights commencing on 3 and 17 August 2020, employers have until August 31, 2020, to meet the wage condition for new eligible employees under the July 1, eligibility test.

“The clock is already ticking, so impacted employers must act now; doing nothing is definitely not an option,” Mr Conway said.

www.publicaccountants.org.au

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THE INSTITUTE of Public Accountants (IPA) has welcomed the Insolvency Inquiry Report released by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and hopes the Federal Government will accept the 10 key recommendations and moves quickly in its implementation.

“We know that small business is doing it tough and faces huge challenges, particularly in this current COVID-19 environment,” IPA chief executive officer, Andrew Conway said.

“It is therefore critical for the survival of small business that a new regime is implemented which encourages small businesses to assess their position and execute a turnaround with specialist advice from their chosen trusted advisers.

“One of the most pertinent recommendations in the report is that of a Small Business Viability Review, where a voucher worth up to $3,000 is provided to obtain tailored advice to improve their business operations. If the business is assessed as unviable then another $2,000 would be provided to aid in the winding-up process, making the support a total of up to $5,000," Mr Conway said.

“In the latter circumstances, the ASBFEO report recognises that a restructure of business affairs managed by the small business owner, and with approval from a registered liquidator, may have more positive outcomes beyond what is the current norm, including greater returns to creditors.

“To help facilitate this, it has been recommended that a Directors Insolvency Agreement be established where the small business owner can provide a proposal to a registered liquidator on the best way to manage the business.  The proposal may seek a restructure or the winding up of the business, with the retention of the existing company and a sale of the business and/or its assets to an unrelated party. 

“Another key aspect of the report relates to the accessibility of information, including for the small business owner and for creditors.  The report recommends that a modernised approach be taken to information, including simplification, use of plain language, using fact sheets, limiting the volume to relevant information and greater use of electronic means.   The IPA agrees that we need to demystify the process to enable more informed choices and better outcomes.

“The IPA is fully supportive of the recommendations and urges the government to implement them as soon as possible,” Mr Conway said.

www.publicaccountants.org.au

About the Institute of Public Accountants

The IPA, formed in 1923, is one of Australia’s three legally recognised professional accounting bodies.  In late 2014, the IPA acquired the Institute of Financial Accountants in the UK and formed the IPA Group, with more than 38,000 members and students in over 80 countries.  The IPA Group is the largest SME focused accountancy organisation in the world. The IPA is a member of the International Federation of Accountants, the Accounting Professional and Ethical Standards Board and the Confederation of Asian and Pacific Accountants.

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