SME Insolvency Reform – Message from the TMA Australia President

The TMA welcomes the move by Government announced today to reform Australia’s SME restructuring laws. We have advocated for and support the idea of introducing a streamlined cost-effective restructuring process for SMEs. 

The current voluntary administration regime is an “external administration” model which has proved complex and costly in the context of small businesses. Whilst it can work well in larger administrations it’s not cost effective or fit for purpose for many smaller businesses. Many companies placed into voluntary administration are wound up within a few years. In most of those cases the underlying businesses are not saved.  They are not turned around. Employees’ jobs are lost and creditors see no returns.  The TMA believes the time is right for change. But for COVID-19, otherwise viable SMEs will be wiped out when government and other stimuli are withdrawn. They should be given a chance to survive.

The TMA has advocated for the adoption of a debt compromise or arrangement model being made available to small companies similar to that currently available to individuals under Part IX of the (Australian) Bankruptcy Act. The proposals are also similar to the United Kingdom company voluntary arrangement (CVA) model that allows companies to proactively agree a restructuring of their debts with their creditors.

The TMA supports a process where owners are encouraged to restructure early knowing they remain in control to develop a plan that will be adjudicated upon by their creditors in a transparent and informed manner with appropriate oversight. Preserving creditor democracy in the process is fundamental to ensuring stakeholders have confidence in the process.

Safeguards must be in place to prevent misconduct and phoenixing activity. TMA welcomes moves by government to carve out related party participation in the voting process. The definition of a “small business restructuring practitioner” has not been made clear in the Treasurer’s statement. The TMA will be seeking clarity on this and other details ahead of the proposed January 1 2021 start date.

As the leading member based organisation in Australia committed to corporate renewal, the TMA believes moves to rehabilitate SMEs post COVID-19 and to secure some return to creditors to ease the path of the economy back to normal will ensure the efficient allocation of capital and help restore the economy when the pandemic is over. 

We will continue our dialogue with Treasury and member-based organisations including the BCA and AICD to make this reform work as well as possible.  We will also continue to work on reform for medium and large businesses.

Carl Gunther
TMA Australia President
TMAAustraliaPresident@turnaround.org.au
TMA Australia Turnaround Management Association Australia