Launching our Insolvency Practices Inquiry just a few months ago, we didn’t realise our work would reveal crucial lessons for the small-business victims of this awful bushfire season.
The devastation is unprecedented and the small-business community is reeling. In the tiny NSW town of Mogo, fire tore through the main street, burning shops and businesses to the ground. Cobargo was the same and there may be more to come.
Even those small businesses in coastal towns that still have a premises to operate from are under extreme pressure, with their usual busy summer trading period all but obliterated by mass evacuations, road closures and power outages.
The bleak reality is that many of these small businesses will not survive. Those that do will be grappling with major challenges over the coming months as they try to get back on their feet.
It’s inevitable that many of these affected small businesses will experience financial difficulties at the very least. That’s why it’s important to share some of the big lessons coming from our ongoing Insolvency Practices Inquiry.
Having consulted widely with industry practitioners, accountants and financial advisers, the overwhelming message to small-business owners experiencing financial difficulties is to seek help as soon as possible.
Don’t wait and don’t assume you have to go it alone. What we know is that the sooner small and family businesses experiencing financial difficulties seek help, the more likely it is they can achieve a turnaround or restructure.
At the moment there is a low success rate in restructuring Australian businesses under external administration and the impact of the insolvency process is often devastating for the small-business owner and their families. Few small businesses that enter formal insolvency administration are able to navigate through the process to reach a restructuring agreement.
Small and family businesses under financial strain need to understand that there is help available when things get tough. This is the time to lean on trusted advisers, such as an accountant or financial counsellor.
For those small businesses in bushfire zones it’s vital to act now. Call your insurance provider as soon as possible. Contact your accountant for the latest information from the Australian Taxation Office. Automatic deferrals of BAS are already in place for those in bushfire-affected areas. They can also provide support based on individual circumstances.
The Australian Financial Complaints Authority has a dedicated online bushfire support hub with information on financial recovery, including how to make an insurance claim.
For small businesses in dispute with their insurance provider, another business or government agency — my office can help. There are also small-business commissioners in most states that can provide assistance. By getting on the front foot, small businesses can avoid more serious ramifications in the longer term.
We’re getting this message out there now because the stories we’ve heard throughout the course of our inquiry have been harrowing.
They’ve not only shone a light on some of the failures of the insolvency system but also highlighted the challenges faced by industry professionals.
More than 300 small businesses have come forward to share their experiences of going through the insolvency process. Respondents have spoken of being left with nothing — no business, a ruined reputation and often no home and even broken families. It’s gut-wrenching to hear.
Time and again, small businesses have told us their experience has been a loss of control, costs that strip the value of a business and a lack of transparency throughout the process.
These issues were first identified in 2016 when my office released its Small Business Loans Inquiry. As part of that inquiry we found a number of small businesses had entered external administration and were disappointed by the management of the process.
In October, we launched the Insolvency Practices Inquiry to investigate the experiences of small and family businesses that have gone under external administration.
We’ve now released a discussion paper as part of the inquiry. The paper outlines key pain points for small businesses as well as the challenges for registered liquidators. It also poses a number of important questions we are seeking comment on, particularly around the transparency of the insolvency process.
Of particular interest to our inquiry are the events that led to the insolvency, where the directors sought advice, the choices they were offered and the reasoning behind the decisions made.
Ultimately, we will make recommendations on developing a best-practice framework for small businesses facing insolvency and for practitioners managing external administrations as part of the final report set to be released in March.
In the meantime, we have extended the deadline to share insolvency stories via our online survey or by providing a submission to firstname.lastname@example.org until the end of the month.
And as this fire crisis unfolds, we are bracing ourselves for another influx of horror stories.
Kate Carnell is the small business and family enterprise ombudsman.