Ombudsman welcomes 'debtor in possession' insolvency rule changes
THE Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has welcomed legislation introduced into Parliament today, overhauling the insolvency framework.
The legislation tabled will make is easier for small businesses to restructure or wind up and are in line with the recommendations made in the Ombudsman’s Insolvency Practices Inquiry final report, released in July.
“These landmark reforms will be a game-changer for small businesses, particularly those that have been heavily impacted by the COVID crisis,” Ms Carnell said.
“Instead of finding themselves on an express train to winding up with no control over the process, these changes will ensure small businesses will have the option to turn their business around, giving them a fighting chance to survive.
“Crucially, by moving to the ‘debtor in possession’ model, small businesses can restructure their debts while remaining in control of their business," Ms Carnell said.
“For those businesses that sadly need to wind up, the liquidation process will be simpler, faster and cheaper.
“We know the pandemic, which followed a devastating season of natural disasters, has driven many small businesses to the brink.
“Modelling by Deloitte Access Economics estimated about 240,000 small businesses are at risk of failure.
“This is exactly why small businesses need to sit down with their trusted and accredited financial adviser for a viability assessment as a matter of urgency," she said.
“It is this critical first step that small businesses would be more likely to make if the government adopted our recommendation to establish a small business viability program, providing small business owners facing financial stress with a grant valued up to $5,000 to access tailored advice on the state of their business.
“Unfortunately small businesses with cash flow issues, compounded by falling revenue, may not seek out professional advice because it is deemed unaffordable. This could prove to be devastating for the business, staff and family," Ms Carnell said.
“Ultimately this legislation represents enormous progress and if passed, the new insolvency process will be available to small businesses from 1 January 2021.
“Crucially, this will give otherwise viable small businesses a chance to recover, preventing a wave of unnecessary insolvencies.”