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