The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell says the Insolvency Practices Inquiry has heard a vast number of harrowing small business stories, shining a light on the failures of the insolvency system as well as the challenges faced by industry professionals.
Ms Carnell today released a discussion paper, seeking feedback on developing a best practice framework for small businesses facing insolvency and for practitioners managing external administrations.
“More than 300 small businesses have come forward to share their experiences of going through the insolvency process,” Ms Carnell says.
“Many have spoken of being left with nothing – no business, a ruined reputation and often no home and broken families. It’s absolutely gut-wrenching.
“The overwhelming experience of small businesses has been a loss of control, costs that strip the value of a business and a lack of transparency throughout the process.
“We also appreciate the constructive feedback we’ve had from insolvency practitioners, industry groups, lawyers and financial advisors.
“They have sent the clear message that small businesses experiencing financial difficulties are often leaving it too late to seek help.
“What we know is the sooner small and family businesses get help, the more likely it is they can achieve a turnaround or restructure.
“ASIC has just released new data revealing more than 8,000 businesses entered external administration in 2018/19. 51% of those businesses reported inadequate cash flow as the key cause of failure.
“It’s crucial that small and family businesses experiencing financial difficulties understand they don’t have to go it alone. This is the time to lean on a trusted advisor, like an accountant.
“Industry professionals have also called for a streamlined insolvency process for small business, with minimal red tape that provides a real option to turn around the profitable parts of the business.
“In releasing this discussion paper, we’ve outlined the key pain points for small businesses as well as the challenges for registered liquidators.
“In the meantime, this discussion paper poses a number of questions we are seeking feedback on, particularly around the transparency of the insolvency process.
The final report will be released in March 2020.