Australia needs new insolvency laws to encourage small businesses

Source: theconversation.com --- Thursday, September 28, 2017
Banks aren't sure they will recover their money if SMEs fail. Shutterstock The Ten Network’s recent experience of voluntary administration and subsequent rescue by CBS demonstrates how insolvency law works for large Australian companies. But 97% of Australian businesses are small or medium size enterprises (SMEs), and they face a system that isn’t designed for them. 60% of small businesses cease trading within the first three years of operating. While not all close due to business failure, those that do tend to face an awkward insolvency regime that fails to meet their needs in the same way it does Network Ten. The lack of an adequate insolvency regime for SMEs inhibits innovation and growth within our economy. It adds yet more complexity to the already difficult process of structuring a small business. Further, it inceases the cost of funding . Lenders know that recovering their money can be onerous if not impossible, so they impose higher costs of borrowing. Australia’s insolvency regime Australian insolvency law is divided into two streams, each governed by a separate piece of legislation. The Corporations Act deals with the insolvency of incorporated organisations, and the Bankruptcy Act addresses the insolvency of people and unincorporated bodies (such as sole traders and partnerships). Both schemes are aimed at providing an equal, fair and orderly process for the resolution of financial affairs. But a large part of the Cor ...

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