Hundreds of thousands of small business owners facing insolvency due to the economic fallout of COVID-19 will be able to take back control of their future as a result of legislative changes announced by Federal Treasurer Josh Frydenberg today.
ACCI was pleased to host Mr Frydenberg this morning to announce changes to Australia’s insolvency framework to help small business owners stay trading and keep more people in jobs.
ACCI Chief Economist Dr Ross Lambie said a significant portion of the more than 900,000 small businesses currently relying on financial support may face insolvency before the end of the year.
“Insolvency will become a reality for many small business owners due to mounting debt,” Dr Lambie said.
“Social distancing requirements and trading restrictions have wiped out revenue. Combined with mounting debt, much of which has been delayed rather than waived, the reality we’re left with is hundreds of thousands of small business operators at risk of becoming insolvent.
“Small business owners are increasingly stressed about revenue loss and mounting debt. No doubt this stress will increase sharply over the next few months as the payment deferral for loans, rents and payroll tax end.
“Under the current legislation, small business owners stand to lose everything – the family home used to guarantee the business as well as their life savings.
“Today’s measures mean they have the space to restructure their debts and, if necessary, their business, and negotiate directly with creditors before the administrators are called in.
“Hopefully, it will reduce the overwhelming sense of powerlessness that sets in under the current system and provide small business owners with breathing space to be able to trade out of their situation.”
Dr Lambie said it was not in the creditor’s interest for the administrators to be called in to fold a business with them gaining only a few cents in the dollar owed.
“It is much better, if they can come to an arrangement so that the business can continue trading, or the business can be liquidated sooner without an expensive, drawn-out legal process that leaves them with nothing.
“While the new arrangement will save many businesses, we recognise that some business will not be able to cover their debts and continue trading. We hope the new arrangements will encourage these unviable businesses to make the decision to fold early, to sit down with their creditors and negotiate an outcome that enables them to walk away with dignity, and some of their assets intact, so they can look to start a new business when conditions improve.
“We would also like to acknowledge the Australian Restructuring Insolvency & Turnaround Association (ARITA) who have been championing for meaningful reform to Australia’s insolvency framework for years.”