THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has welcomed a national agreement to strengthen protections for small businesses from 'unfair contract terms'.

Assistant Federal Treasurer, Michael Sukkar has announced that federal, state and territory governments have agreed to make unfair contract terms unlawful, giving courts the power to impose a civil penalty when a breach occurs.

“The government has clearly listened to the concerns my office has long held in relation to the impact of unfair contract terms imposed on small businesses by big businesses,” Ms Carnell said. 

“Importantly,these reforms will ensure unfair contract terms are illegal and the courts will have the power to levy penalties for breaches.

“Equally, we welcome the expansion of the definition of small business to under $100 million turnover or up to 100 employees, which means 99 percent of businesses will be afforded these protections." Ms Carnell said.

“The removal of the requirement for a contract to be below a certain threshold also represents significant progress for small businesses.

“While these reforms do offer small businesses more confidence to enter into a contract with a larger business, it is disappointing that unfair contract terms will still need to be decided by the courts.

“This has proven to be a significant barrier for small business as pursuing legal action is a costly, stressful and time-consuming exercise," she said.

“That’s why my office continues to recommend giving the regulators additional powers to penalise businesses found to have imposed unfair contract terms on a small business.

“It’s also crucial these reforms apply to government contracts, which often impose unfair contract terms on small businesses.

“We look forward to seeing draft legislation to ensure these necessary reforms come to fruition as a matter of urgency.”

www.asbfeo.gov.au

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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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