Stigma linked to failure is keeping business people from calling in administrators
Running a business is tough for many Victorians at the moment, thanks to strict lockdown conditions — but there’s another problem business owners are grappling, and it’s not pretty.
Victoria
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The stigma linked to insolvencies could be a factor in business owners not putting their companies into voluntary administration.
Industry experts say the fear of being seen as a failure has been on the minds of many business people, but hoped the economic disaster caused by coronavirus could signal a new mindset.
Ernst & Young Partner Justin Walsh said people were “absolutely very worried about the stigma attached to voluntary administration”.
“What I say to clients is they can be worried about that, but the downside is it causes them to wait — and the longer you wait, the harder it is for a successful restructure.”
Thousands of businesses are being kept alive due to temporary insolvent trading relief — which will simply delay a surge of insolvencies — with industry figures urging those in danger to restructure or quit before their homes and life savings were threatened.
Mr Walsh said when a company became insolvent it meant people lost money and there was “obviously a stigma with that”.
“But I think particularly with COVID it is far less and the failures we have seen, and are going to see, are clearly due to situations beyond the control of the management of the business.”
His view was the Australian economy needed entrepreneurship to be successful “and that requires risk and there will be failures from that”.
Small Business Australia is lobbying state and federal MPs to have the legal ramifications of bankruptcy changed and a new term of COVID Business Closure used.
“There is the level of ‘I feel sorry for people made bankrupt, they must have been incompetent, fraudulent or negligent’ so that’s why we would like to see that term introduced, we don’t want to see the work bankruptcy used.”
Mr Lang said there were practical implications of being declared bankrupt, which was especially unfair with so many closures as the result of the pandemic.
“It is harder to borrow money, you have to disclose it if you buy insurance policies, get visas to America and some places. Most people don’t understand it, they assume people got in over their heads and some would think it is much worse than it really is.”
CreditorWatch CEO Patrick Coghlan said administration “wasn’t a dirty word” and it played a key role in the economy.
“It is an essential part of business — there are companies out there that need the ability to go into administration so they can renegotiate debts with their creditors and ultimately trade out of it, and if you can get companies trading out of it, that’s great for economy and creditors.”
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