Another 250,000 Australians could potentially find themselves unemployed when JobKeeper ends on 28th March 2021. The end of the scheme is anticipated to lead to thousands of businesses failing across the country. This will consequently lead to anywhere between 125,000 and 250,000 people left without a job.  

There are many businesses that would’ve already closed had it not been for the assistance of JobKeeper.  Since September 2020, over half a million businesses across the country have graduated from the scheme. Despite the schemes success at helping businesses survive during the pandemic there are a number of businesses struggling in industries such as aviation, tourism and the arts and recreation services.

At the start of 2021, the federal government introduced a new process to assist financially struggling businesses that were facing insolvency. Under the recently introduced changes, companies who are eligible can appoint an insolvency practitioner to help them restructure, pay their creditors and continue to operate.  

The Federal Government’s insolvency reform package was passed by Federal Parliament on 11th December 2020. The new rules offer a debt restructuring process intended to give eligible small businesses the opportunity to restructure their debts while the directors remain in control of the business. The reforms also offer a new and simplified liquidation process for small businesses. 

Eligible small businesses are given access to a ‘debtor-in-possession’ restructuring process where a restructuring plan can be proposed to deal with creditor claims. Under the legislation, a secured creditor will only be bound by a restructuring plan to which the extent of the claim exceeds the value of its security, or if it votes in favour of the plan. 

There are many options a financially distressed business can consider taking. It important to know which process is the right one for your situation and when to use it. There is a massive difference between early intervention, a reactive process, a controlled process and being forced to windup. 

Craig Dangar says that “we are recommending that all businesses examine their options, one of which may be an informal arrangement or a structure negotiation with creditors where the Small Business Restructuring may not be appropriate. The primary concern is whether there is a viable business and often where a small business is ineligible there has to be a question mark over their solvency” says Craig Dangar.

It is anticipated that once businesses who are still receiving JobKeeper are given their last payment in April, the ATO will more than likely begin to pursue outstanding debts. 

The ATO’s debt book is roughly estimated to be close to $54 billion and they want to recover this amount of money. As a result of this we can see a wave of insolvency occurring starting from next month. 

When facing financial difficulty, it is important to be aware of the warning signs. Common signs of a financially distressed business include; poor cash flow, ongoing losses, creditors not paid within usual terms, suppliers putting the company on COD terms; letters of demands, judgments or warrants issued against the company; overdue taxes and superannuation liabilities or overdraft limit reached or defaults on loan or interest payments.