Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson has proposed key reforms be made to Australia’s insolvency laws as they undergo review for the first time in over three decades.
Billson is calling for an emphasis on optimising and preserving value in a business instead of resorting to asset fire-sales. He also stressed the importance of small businesses being able to receive more timely advice, written in plain English, and that their trusted advisers are upskilled to better manage business viability and highlight early concerns regarding the solvent nature of a business.
“The perceived negative stigma surrounding insolvency and a lack of accessible information regarding individual business performance, industry benchmarks and insolvency processes, means small and family businesses may not realise they have viability issues,” Billson said.
The ASBFEO is also proposing the merger of the personal and corporate insolvency systems, saying it is a sensible step because small business and personal finances are uniquely intertwined.
“Insolvency can occur in any sized company, but it is particularly devastating for small businesses, which have less cashflow flow to mitigate against disruptions, are often underinsured, and have fewer options and legal tools and protections than larger companies,” Billson said.
“Small businesses face a disproportionate burden in navigating the full suite of legislation governing insolvencies, as they are often time-poor, and have less access to specialist advice than their larger counterparts,” he added. “Yet, the current insolvency system is not sympathetic to honest failure and genuine prospects for recovery of the business or business owner. The lifecycle of a small business should include a simple, early exit strategy should the business begin to become unviable.”
Given how the support given to small businesses during COVID-19 has helped turn the tide against insolvency for at least two years, Billson also proposed a Small Business Debt Hibernation program that would include a freeze on tax and other fees as well as government financial support that would be triggered whenever there are shocks beyond the control of a small business that affect them financially. This proposed program will provide small businesses with the option to hibernate their business debts, restructure, or continue trading, as well as giving them tools to help them assess their viability and provide assistance with future planning.
“The current insolvency framework assumes that the failure of a business is due to poor management of that business. Yet, when a crisis shocks an economy, even the best-managed businesses will face enormous headwinds and may not survive,” Billson explained, bemoaning the fact that current insolvency practices in Australia are “costly, complex and difficult to navigate”, and do not take into account the unique characteristics and challenges of small businesses.
“The system does not encourage the possibility that, through restructuring or assistance, the company could return to profitability and preserve the interests of creditors, investors, business owners and other key stakeholders including staff,” Billson said.
Billson was also critical of the current insolvency provisions in the Corporations Act for being complex and difficult to understand. saying that important information should be written in simple English with less technical wording and governments should ensure information is made available in other languages to better support businesses from culturally and linguistically diverse backgrounds.
“This information is currently not easily available in one place,” Billson said. “Insolvency information is scattered across multiple platforms, which makes it difficult to find and easy to miss potentially critical information. This may result in accidental non-compliance.”
