Why ASIC is failing our small businesses

The West Australian, 21 October 2017

Australia’s under-resourced corporate regulator has emerged from the US lawsuit against Rio Tinto as an irrelevancy when it comes to exposing and prosecuting wrongdoing at the big end of town.

But out-of-pocket small businesses are also entitled to ask whether the Australian Securities and Investments Commission has their backs.

The most vulnerable victims of a company collapse are the trade creditors. In many cases, they’re small businesses that can ill-afford the loss. Sometimes that unrecoverable debt is enough to also force them under.

On occasions, the stricken company has traded while insolvent, racking up bills even though it didn’t have the money to pay its debts as they fell due.

Yet for all the hundreds of millions of dollars lost every year because of insolvent trading, there seems to be little justice available for the victims.

Insolvent trading can be a tricky area. A business may not be able to pay its debts from cash flow but still be technically solvent because it retains the support of its bank. Until the lender pulls the pin, the company continues to incur credit even though it is unable to pay its suppliers.

The Corporations Act has some statutory defences for directors involved in insolvent trading. But it also details civil and criminal penalties for breaches, including up to five years jail for directors who act dishonestly by allowing a company to incur debts while insolvent.