THE Institute of Public Accountants (IPA) has welcomed the Federal Government’s announcement to reform Australia’s insolvency framework.

“These significant insolvency reforms may be a true gamechanger for many thousands of small businesses around Australia,” said IPA chief executive officer, Andrew Conway.

“They could be the difference between survival and extinction.

“The question of viability of many small businesses was raised during the 2019-20 bushfire season. Many experienced the floods that followed and then, the COVID-19 pandemic has delivered a catastrophic blow," Mr Conway said.

“These landmark reforms for Australian small businesses will test their viability and support their recovery, restructure and survival or alternatively, help them wind down and exit without the personal devastation that is often attached to the process. 

“One of the key elements of these reforms includes a new debt restructuring process following key features of the US Chapter 11 bankruptcy process. 

“This is a great initiative as it allows eligible small businesses to restructure their debt and improve their chance for survival.  Importantly, while accessing a single, streamlined process, the small business owner remains in control of their business. This empowerment will help rebuild small business confidence.

“Another interesting feature of the reforms will see the introduction of a rapid 20 business day period for the development of a restructuring plan by a ‘small business restructuring practitioner’. Once a plan is drawn up, creditors are then asked to vote on the plan. The plan must achieve the requisite majority for it to be binding," he said.

“It should be noted that while these reforms are due to commence on January 1, 2021, it is recognised that time is needed for practitioners to become familiar with the new processes and they will need to register as a small business restructuring practitioner. The detail will also have to be worked through to ensure the objectives are achieved.

“Knowing how critical small business is to the overall wellbeing of our economy, these reforms, and other initiatives to support small business, will be vital to Australia’s post-pandemic economic recovery.

“The IPA is hopeful there will be more good news for small business in the Federal Budget to be handed down in just over a week’s time. We all hope that 2021 will bring a calendar filled with more confidence than the utter havoc of 2020,” Mr Conway said.

www.publicaccountants.org.au

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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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