COVID-19 transmitted insolvency - diffusing a massive bankruptcy bomb
Leading industry groups fear that unless the government acts quickly to amend bankruptcy legislation many people likely to be bankrupts before the end of the year will suffer unfairly.
Council of Small Business Organisations Australia CEO Peter Strong says many business owners believe landlords will in the months ahead start court actions to claim unpaid rent during the COVID-19 crisis.
He says defendants in these cases will include business owners who is the past have kept up with rent payments, would have been “most unlikely to go bankrupt because they’re bad business people or bad decision makers, but have simply been bankrupted by a virus”.
Accordingly, there is widespread concern in the business community that a lot of good, efficient and effective business people are about to be lost for a long period of time to an economy that cannot afford to lose them.
The government’s position
While the government hasn’t said it’s not prepared to intervene in this situation, Treasurer Josh Frydenberg points out it has already made more than 80 regulatory changes to help businesses since March.
More than 500,000 SMEs have been given government instigated flexibility in recent months to operate their businesses and, at the time this article was written, had received more than $9b under a program to boost cash flow.
Furthermore, the government’s loan-guarantee scheme has approved $1b in loans to more than 11,000 businesses.
The Council of Small Business Organisations Australia has itself offered 67 $10,000 grants to small businesses employing between two and 50 people and having annual revenue of between $150,000 and $2m.
The grants are for business owners to use at their discretion – for example for marketing or investing in customer experience online, purchasing inventory before reopening post COVID-19, or currently for paying staff or other operational costs.
However, the Council is insistent that what has been done so far by the government and business organisations isn’t enough to prevent an inevitable explosion of bankruptcies.
Diffusing the bomb
It was estimated mid-May that 68% of Australia’s 2.2m small businesses were under financial stress, 440,000 were closed temporarily or permanently, and that 600,000 were likely to collapse in the next few months.
Bill Lang, a director of Small Business Australia is reported to favour “a new class of COVID insolvency” that he believes should be established without delay and should have effect for at least two years.
This, he says, would protect bankrupted business owners from punitive aspects of bankruptcy such as being banned for being a company director for seven years and for having what amounts to a black mark against their name.
In March, the Federal Government introduced temporary relief measures to bankruptcy law including those which gave business owners six months’ immunity from creditors’ claims, but these will be withdrawn in September.
Businesses in financial difficulty will also be hard hit at this time when the current JobKeeper program is due to end.
SA’s small businesses contribute $35b a year to the State’s economy and Mack Advisory believes organisations representing them can fairly expect the Federal Government to respond positively to their appeal for bankruptcy law protection in a situation which is no fault of theirs and over which they have no control.
