Updated September 23

As the fallout from the coronavirus crisis persists, continuing to remain solvent remains a challenge for many small business owners.

Thankfully the government has amended insolvency laws, to make it more difficult to put a company into involuntary liquidation. The changes made, contained in Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) will remain in force until December 2020 and will hopefully reduce unnecessary insolvencies and bankruptcies. Additional changes announced by the Treasurer Josh Frydenberg in September will kick off on January 1 2021. The new measures will see small business and big business treated differently for the first time.

How the insolvency changes will affect you

“Under the new structure, based on the United States’ Chapter 11 bankruptcy process, small businesses with a total debt of less than $1 million owing to creditors will be able to retain control of their business and plan their recovery independently without being handed over to administrators.

The change in law will see small businesses able to pay a flat fee after calling in small business advisers and will then have 20 days to propose a way to trade out of debt to creditors. Creditors will have a further 15 days to vote on the proposed plan, and if approved, will be put into action.

It’s welcome news for small business restructuring expert and licenced liquidator Domenic Calabretta. Calabretta tells KBB for businesses to survive in these challenging times they need to get on the front foot.

“I regularly have clients whose companies we could have turned around if they had come to us sooner,” Calabretta explains. “I would much rather be the professional that businesses turn to for help as soon as they realise they may have an issue, than the expert they go as a last resort.”

Calabretta has commended the government’s amendments which make it more difficult for companies to be put into administration.

The changes made, contained in Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) will hopefully reduce unnecessary insolvencies and bankruptcies,” he said.

According to Calabretta making some simple changes could prevent businesses from falling into insolvency. He said calculating your exposure and forecasting cash flow in difficult times is the first step.

Get in touch with the ATO

Once the calculations are complete, he suggests minimising your financial commitments is the next option. If your struggling to meet tax commitments, applying to the ATO for tax relief should be one of your first ports of call. Calabretta says PAYG payments may be varied and you can request a postponement to defer payment of income tax, Activity Statements and fringe benefits tax. He also suggests changing your GST reporting cycle to monthly so credits can be processed more promptly.

Reduce your overheads

Once you have your tax squared away it’s time to carefully examine your other commitments and look for opportunities to trim the fat. This could be anything from switching suppliers to negotiating better payment terms or speaking with your landlord about rent.

“You may be able to negotiate reductions for subscriptions or software payments, with those companies preferring to keep your business at a reduced rate than lose the income altogether,” Calabretto says.

Check-in with your landlord

You may be eligible for a rent reduction. The COVID19 Emergency Lease Legislation was introduced on 25 March. It ensures retail and residential tenants are protected from eviction or having their leases and tenancies terminated due to hardship caused by the coronavirus crisis. If your business has experienced a significant downturn and you are having problems meeting your lease agreement – be proactive and speak with your landlord to see if you can come to a mutual arrangement to either defer rent or pay at a reduced level till business upticks.

Calbretto encourages you to not be embarrassed to talk to your suppliers, landlord or staff about any difficulties. Honest communication is vital. And remember if you need assistance, talking to a professional could make the difference between sinking or swimming.

Download Mackay Goodwin’s Business Survival Pack to see what options may be open to your business. For tailored advice speak with a Mackay Goodwin professional.