Brendan O’Connor says insolvency reforms will go ahead, but safeguards are needed

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Shadow Minister for Employment, Industry and Small Business Brendan O'Connor. Source: AAP Image/James Ross.

The pandemic has hit small businesses hard, with many about to go to the wall. At the end of this month an avalanche of insolvencies is predicted after a regulatory freeze on bankruptcies expires.

To counter this, the Treasurer and Assistant Treasurer announced in September what they described as “US Chapter 11-style” insolvency reforms. These changes would see small businesses at risk of collapse able to keep trading and work out their problems with a small business restructuring practitioner instead of appointing an administrator.

On paper this looks like a great solution. In reality, we see a photo op with no follow through.

The majority of small businesses are not eligible for these reforms. The measures are only for incorporated businesses – not for sole traders, not for partnerships and not for family businesses structured in other non-incorporated ways.

And my concern is these changes may push the insolvency issue further down the supply chain to other small businesses and sole traders.

Let’s say you fulfilled a large order on credit for another business, or you did work on a housing project, or you catered a function just as the crisis hit, and you still haven’t been paid. What will this new restructuring process mean in terms of you getting your money?

How many sole traders, partnerships, and family businesses will be left with ever later or unpaid invoices that could push them over the edge?

There has been limited consultation with the small business community and more questions than there are answers.

The government is framing this as a small business measure. The reality is there are many small businesses – sole traders and sub-contractors – who this legislation could hurt.

Prior to the announcement, no small business group was consulted. No insolvency experts or accounting bodies were consulted.

And when the legislation and the regulations were released for consultation, stakeholders were given just four working days and a weekend to absorb and critique the complex reforms.

The only reason you would rush something like this is that you view transparency as optional and constructive criticism as non-essential.

Small business advocates have come to me with a series of concerns about these changes – and the list is long:

  • How are cash strapped small businesses going to pay for a restructuring?
  • What protections do suppliers have when continuing to trade with businesses going through a restructuring?
  • How are stakeholders going to know about a company being in a restructuring plan when the company doesn’t have to disclose it and the ASIC registers aren’t being updated properly?
  • What effects will this have on credit availability for small businesses?
  • And significantly, with a new class of liquidator created, but with lesser education and experience requirements, how will creditors and stakeholders be protected?

The Treasurer has been on TV calling for bipartisanship on this legislation. What he means by “bipartisanship” is don’t ask questions, don’t seek safeguards, just rubber stamp this legislation and don’t worry about the risks.

Labor will not do this.

Labor won’t stop these measures helping struggling businesses in the short term. However, we need the government to be held to account and address any adverse effects these reforms create.

We are happy for the legislation to start January 1, provided a couple of safeguards are put in place to stop any unforeseen consequences of this rushed legislation.

Our amendment seeks a review of the operation of the reforms in practice to identify adverse consequences on small businesses, and to propose legislative solutions.

We will also insert a sunset clause so that if the solutions developed by the review are not implemented, the measures will expire after two years.

These are simple, sensible safeguards which would ensure these changes by the government do what they are supposed to do – help small business.


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