Business insolvency appointments are down 60% and bankruptcy applications are down 50% from this time last year, with businesses kept afloat by Jobkeeper. But according to insolvency specialist Michelle Viscardi, despite recent government changes to insolvency legislation, 2021 will be a year of business carnage. “The new legislation comes into effect on January 1 and
The post 2021 – The Year of Too Broke To Go Broke appeared first on Destination Thailand News.

Business insolvency appointments are down 60% and bankruptcy applications are down 50% from this time last year, with businesses kept afloat by Jobkeeper. But according to insolvency specialist Michelle Viscardi, despite recent government changes to insolvency legislation, 2021 will be a year of business carnage.

“The new legislation comes into effect on January 1 and is designed to help small businesses restructure, yet they are only a stop-gap,” said Michelle, Manager of Restructuring and Insolvency at William Buck.

The changes, the most significant in over 30 years, allows businesses with liabilities of less than $1 million to continue trading while they work out a debt restructuring plan. The Federal Government introduced the legislation in November as part of the COVID economic recovery plan.

However, Michelle said there are a number of factors small businesses need to consider before taking on the restructuring process.

“While JobKeeper propped business up in their time of need, for many it’s a short term solution staving off liquidation. Under the previous legislation, a business could be wound up for a debt of $2,000. That’s now increased to $20,000 until at least 31 December 2020. Whilst this may assist some businesses from being wound up, it also puts a lot of pressure on creditors who may also be small businesses.” she said.

“Also, for small businesses and individuals – carrying this size of debt can be huge and has serious implications. For a business to get this heavily in debt, it also means the business owner has ignored the warning signs they’re in trouble.

“Quite often when businesses fall on tough times, they don’t provision for future payments – things like tax and superannuation. These can fall by the wayside. While employees notice when their wages do not hit their accounts, in the coming months, many may find their super has not been paid.”

With 97% of businesses in Australia classified as small, there’ll also be many businesses running as an entity with one director that’ll not be aware of their financial position.

“Many small business operators are in a position where they wear many hats and simply can’t have a finger on pulse on every facet of the business. Also, not all directors are aware of their duties under the legislation and many may already be breaching their duties – which can cause serious personal financial implications for those directors,” she said.

This is where a head in the sand approach is dangerous. Michelle said many in this position don’t seek professional advice, are holding out to see what happens and counting on being propped up.

“There are businesses right now circling the drain, with owners in denial and the changes in legislation will only delay the inevitable,” she said.

Sonia Gibson, director of Accounting Heart said “Director liability is a real danger and legal woes are a concern that every director needs to take advice on,” she said. “Even with the changes in 2021, the legalities around insolvency, are still fraught with danger. It is vital to honour your commitments and meet your moral obligation to pay your suppliers to avoid your business crumbling.”

In six months time, liquidation will be the only option for many of these businesses when they could have been saved if they did something now.

“There is value in getting advice early. The earlier you ask for help, the more options you have. The process of instigating administration procedures is not one without cost. The new legislation gives hope to viable businesses that have suffered a short-term set back as a result of COVID but the time to take action is now,” Michelle said.

“You don’t want to be too broke to go broke.”

The post 2021 – The Year of Too Broke To Go Broke appeared first on Destination Thailand News.