Insolvency law changes to help struggling small business
It’s no secret that small businesses are struggling — but an ambitious plan would put an immediate boost in the pockets of those needing it most.
Victoria Business
Don't miss out on the headlines from Victoria Business. Followed categories will be added to My News.
Industry leaders have described changes to Australia’s insolvency laws as a lifeline for small business owners.
The Federal Government introduced insolvency reforms for businesses owing less than $1 million to creditors last month.
Under the new structure, small business owners will be able to keep control of their business and have 20 days to restructure their existing debts, supported by an independent practitioner.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the insolvency changes would help small businesses survive the coronavirus pandemic.
In July this year Ms Carnell handed down an Insolvency Practices Inquiry final report that highlighted shortcomings in insolvency practices for small and family businesses.
“Small businesses were not getting the chance to turn their businesses around and were instead finding themselves on an express train to winding up with zero control over the process,” Ms Carnell said.
She said the changes would go a long way to fixing that problem.
“Crucially, these measures give otherwise viable small businesses more time to recover, preventing a wave of unnecessary insolvencies.”
VOUCHERS FOR ADVICE
But Ms Carnell says a useful first step for small businesses contemplating insolvency would be having access to a small business viability program.
Business owners facing financial stress would receive a voucher valued up to $5000 to pay for tailored advice on the state of their business.
“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,” she said.
“The voucher would ensure small businesses have access to the expertise they need to judge business viability. Unfortunately, small businesses with cashflow 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. The sooner a small business owner experiencing financial stress seeks assistance from an accredited professional, the better the outcome.”
TEMPORARY CHANGES MAKING A DIFFERENCE
Victorian Chamber of Commerce and Industry chief executive Paul Guerra said previous temporary changes to insolvency rules and emergency support measures, such as JobKeeper, had made a positive difference.
They had contributed to a 46 per cent reduction in the number of companies going into external administration between April and July 2020, compared with the same period last year.
However, as government support is progressively wound back between now and early next year, many businesses will be burdened by the weight of debt incurred during the COVID-19 restriction period, he said.
MORE NEWS
SOCIAL MEDIA TIPS FOR SMALL BUSINESS TO BOOST PROFITS
AWARD WINNING BUSINESS EVOLVES TO SURVIVE
HEALTH AND WELLNESS INDUSTRY TO BOUNCE BACK
“This is widely expected to lead to an upswing of insolvencies,” Mr Guerra said.
“The changes have been met with support from small business owners who have their backs to the wall. There’s no doubt these measures will save some businesses from going under, which means that they will protect jobs and other businesses, too.
“These unprecedented times call for innovative measures to protect businesses and jobs so we can come out swinging on the other side.”