📋 Tender Overview
The Australian Small Business and Family Enterprise Ombudsman Kate Carnell says the Insolvency Practices Inquiry final report exposes the many systemic failures that have harmed small and family businesses ahead of a predicted tsunami of insolvencies to come.The report released by the Ombudsman today details a suite of recommended changes to current insolvency practices that aim to achieve the best possible outcomes for small businesses in financial trouble.Ms Carnell says the report comes at a critical time given the COVID-19 pandemic - which has come on the back of devastating natural disasters - will likely trigger a wave of insolvencies in the coming months.Sadly many small businesses have been driven to the brink by factors outside of their control such as the COVID crisis Ms Carnell says.The reality is that Australia is now in the grip of a recession. Trading conditions are the worst weve seen since the Great Depression and many small businesses wont survive.Our inquiry has found that the system as it stands does not work for small businesses.Small businesses that have been through the liquidation process have told us their experience was so traumatic they will never fully recover let alone try to start a new business down the track. Instead of getting the support they need to turn it around small businesses too often find themselves on an express train to winding up with no control over the process.The system needs to change dramatically so that small business owners are given the chance to make important decisions about the future of their business without being pushed into outcomes they dont want like losing their family home.The report recommends establishing a Small Business Viability Review program where small business owners experiencing significant financial stress can obtain a voucher of up to 5000 to access a tailored plan from their trusted accredited financial adviser.We know the sooner a small business seeks help the more likely it is they can achieve a restructure or turnaround Ms Carnell says.But cash flow issues compounded by falling revenue may mean those small business cant afford the professional financial advice they need. The ramifications of this could be devastating both for the business and its owner and family down the line.Another key recommendation is the establishment of a small business debt hibernation instrument when a state territory or federal government declares a systemic shock such as a pandemic or significant economic downturn.COVID-19 has shown that businesses need a mechanism where they can take stock of their situation and prepare for the re-opening of trade Ms Carnell says.The minimum hibernation period would be 90 days during which payments on loans rent tax and other outgoings could be deferred.The Ombudsmans report recommends establishing a Directors Insolvency Agreement where a small business owner can provide a registered liquidator with a proposal on the best way to manage the business.External administrations are focused on maximising the benefit to creditors while the small business owners expertise and knowledge is often brushed aside Ms Carnell says.Small businesses have spoken of stock being sold at a low point in the market assets being put up for sale in publications that arent relevant to their industry and thousands being spent by registered liquidators to chase down payments worth far less than the amount spent.If the small business owner with the approval of a registered liquidator could restructure their affairs it would likely lead to more positive outcomes including a greater return to creditors.Ms Carnell says the cost of insolvency should be capped for small businesses particularly given the majority of small businesses entering liquidation have assets of less than 10000.Throughout the course of this Inquiry we have spoken with a range of registered liquidators who have indicated the minimum cost of a straightforward voluntary administration is about 12000 while the average is closer to 50000 Ms Carnell says.For businesses that need to wind up it is critical that the process be cost effective quick and dignified.Ultimately if implemented our Insolvency Practices Inquiry recommendations will go a long way to ensuring the Australian small business community retains its fighting spirit.
