Insolvency is one of those topics business owners rarely discuss until they are faced with an imminent risk of insolvency. But like all risks, a prior knowledge of the risk and what can be done to reduce the long term financial impact if your business is the subject of an insolvency action can be the difference between longer term recovery and complete destruction of your personal wealth.

During a recent inquiry into small business loans, the Australian Small Business and Family Enterprise Ombudsman identified a lack of transparency for the small business owner when a creditor commenced debt recovery action.

A number of small business owners who were unfortunate enough to have been involved in these actions stated that they had lost control of their business as they were unable to contribute to, or obtain copies of, reports by insolvency practitioners. As the cases reviewed frequently ended in the business being wound up, the process appeared poorly managed to the small business owners and resulted in less than ideal outcomes for the owner, the lender and creditors of the business.

Having regard to these issues, the Australian Small Business and Family Enterprise Ombudsman launched an inquiry into the Australian insolvency system to investigate current issues and identify potential improvements that might be implemented to deliver fairer outcomes for the owners of small and family businesses.

“Most small business owners only become aware of the challenges of insolvency when their business is directly impacted and then learn that their ability to minimise their losses is compounded by a system that is, arguably, biased in favour of delivering returns to debtors as opposed to getting the best practical outcomes for sale assets – albeit during a fire sale”, said ACAPMA CEO Mark McKenzie.

“The fact that the ASFBEO has taken up this cause is a very welcome development and the Ombudsman is now seeking input on a discussion paper identifying possible changes to the current insolvency system with a view to delivering fairer outcomes in the future”, added Mark.

A copy of the ASFBEO Discussion paper can be downloaded HERE and business owners and other interested parties are invited to submit comment to this paper by COB on Monday 27 January 2020.

The ASFBEO is also looking for business owners who have had an experience with insolvency in recent years to share their stories via an online survey. This survey can be accessed HERE and comprises 12 short answer questions.

The outcomes of this survey are wholly confidential (and guidance is provided in respect of observing commercial confidences) but the aggregate findings will be used to further refine the ASFBEO Discussion Paper in terms of identifying any improvements that need to be made to Australian insolvency practices.

Further information about the ASBFEO Inquiry can be found by visiting the ASFBEO Inquiry website.