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07 September 2020

Extended insolvency protections a relief for small businesses

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the federal government’s extension of temporary insolvency and bankruptcy protections, to support struggling small businesses impacted by the COVID crisis.

Regulations reducing the threat of creditors taking action against a small businesses impacted by trading restrictions have now been extended to 31 December 2020.

The changes also extend the temporary relief for directors from any personal liability for trading while insolvent.

“These necessary measures give otherwise viable small businesses more time to recover, preventing a wave of unnecessary insolvencies,” Ms Carnell says.

“While we support this temporary relief for financially distressed businesses, there will also be a number of zombie businesses kept artificially afloat as a consequence.

“ASIC data shows insolvencies are tracking at close to 50% 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, highlighting the critical need for small businesses to sit down with their trusted financial adviser for a viability assessment.

“My office continues to recommend the establishment of a small business viability voucher 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.

“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, down the line.

“We know the sooner a small business owner experiencing financial stress seeks assistance from an accredited professional, the better the outcome.”