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ASBFEO pushes advice subsidy ahead of potential insolvency spike

Adrian Flores
Adrian Flores
21 July 2020 2 minute readShare
Kate Carnell

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has recommended a voucher program of up to $5,000 to enable small businesses to access financial advice ahead of a predicted uptick of insolvencies.

Remarking on the final report from the Insolvency Practices Inquiry, Ms Carnell said 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.

She supported the report’s recommendation of establishing a Small Business Viability Review program where small-business owners experiencing significant financial stress can receive a voucher valued up to $5,000 to access financial advice.

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“We know the sooner a small business seeks help, the more likely it is they can achieve a restructure or turnaround,” Ms Carnell said.

“But cash-flow issues, compounded by falling revenue, may mean those small business can’t 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.”

 

The comments come after CreditorWatch reported payments in June were overdue by an average of 49 days across all industries, 342 per cent higher than the June 2019 figure, leading them to speculate that businesses are simply delaying entering into administration.

Ms Carnell said the cost of insolvency should be capped for small businesses, noting the majority of small businesses entering liquidation have assets of less than $10,000.

“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 $12,000 while the average is closer to $50,000,” Ms Carnell said.

“For businesses that need to wind up, it is critical that the process be cost-effective, quick and dignified.”

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The report also recommended 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, such as the recent second lockdown in Victoria.

“COVID-19 has shown that businesses need a mechanism where they can take stock of their situation and prepare for the reopening of trade,” Ms Carnell said.

“The minimum hibernation period would be 90 days, during which payments on loans, rent, tax and other outgoings could be deferred.”

In addition, the report also explored a potential 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 owner’s expertise and knowledge is often brushed aside,” Ms Carnell said.

“Small businesses have spoken of stock being sold at a low point in the market, assets being put up for sale in publications that aren’t 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.”

ASBFEO pushes advice subsidy ahead of potential insolvency spike
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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