James Stevens (Sturt, Liberal Party) Share this | Hansard source

It's my pleasure to rise in support of the second reading of the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020. It is, in many ways, an important piece of deregulation for the business sector. I hope to see us undertaking a lot more similar types of reform through this chamber, moving away from the one-size-fits-all approach to putting burdens on businesses and, equally, in this case, the pressures of the rigidity of insolvency laws that apply to all businesses in our economy, regardless of their size. This is something that strikes me as an opportunity to look at other ways in which we regulate the corporate sector, absolutely keeping important measures, metrics and laws in place for big business, but looking for ways to reduce burdens on the smaller businesses where, frankly, the burdens lead to pressures that can ultimately end up, ironically, with the business having to confront the challenge that this legislation is seeking to deal with, which is facing insolvency.

We all know that about one-third of small businesses fail in their first year and 70 per cent in their first three years. Frankly, 'failure' isn't a fair term. I think if anyone had established a tourism business about six months ago and at this stage found themselves in difficult times, it wouldn't be because they failed; it would be because something outside their control came along this year, through the COVID pandemic. You can reasonably expect, with many of the businesses that fail earlier on, that it is not because the person hasn't put in the effort, hasn't had a good idea, hasn't put their heart and soul into establishing that business or hasn't had an excellent business plan. But, of course, when you put your own money on the line or put your own capital out there, you take a risk. You move away from being an employee, with the job security that entails, to put it on the line to start a business. There is enormous risk, and a lot of people can find themselves in distressed circumstances and difficult circumstances.

This bill creates an opportunity for smaller businesses not to have to immediately be thrown into the rigidity, the expense and the pressure of the existing insolvency framework in our economy which is designed to cover everyone from small businesses—those for which this legislation will alleviate that pressure—right up to enormous listed companies. This is not about the Enrons; this is about the small businesses who are having a go and are in some difficult financial times and, under the current prescriptions of our insolvency framework, are required to do certain things which are, frankly, disproportionately expensive and may prematurely end a business that had a chance of succeeding without giving them the chance to trade their way out of a difficult period of time.

In my career, I've been involved with a lot of start-up businesses and a lot of business plans. When someone is planning their business and doing their business plan, cash flow and budgets et cetera so that they know how much money they can invest in their business, they do a stress test early on of all of their assumptions about what their expenses are going to be and about what is a very conservative, likely revenue and cash flow. It has struck me that then, when they ultimately decide to go to their bank and borrow money for their businesses, they always try and make that number as small as possible. Understandably, a lot of start-up businesses and even existing businesses have, in their culture and nature, a desire to borrow the least amount of money possible, particularly from a bank. We could have another debate at another time about banks and their relationship with small businesses and their preparedness to cut small business some slack and cut them a break at times. Certainly, most people, when they're establishing a business, want to borrow as little money as possible. That usually means that it doesn't take much of a challenge to come along which you didn't plan for or expect for you to find yourself in financially distressing times. That doesn't mean that the business is doomed to fail, that your idea wasn't a good one or that the business should be immediately wound up—quite the opposite. You've had a challenge come along. You can trade through it. You can get your way out of it, but you need protection from a framework that keeps your creditors in a position where you have the power, for a short period of time in that equation, to try to trade yourself out of the situation that you've gotten yourself into, that's probably in no way your own fault. And it's exactly because of the COVID challenges we've had this year that this type of legislative reform has seen the light of day. We see it has merit, because we do need to be remembering that businesses certainly confront challenges that are normal. They also have challenges that are abnormal. So surely our first principle needs to be: we want to do everything we can to help businesses have the best chance possible to succeed. The measures in this legislation do exactly that.

It has been mentioned in some of the contributions that we've reflected on the chapter 11 bankruptcy laws in the United States. This is not introducing that specific framework here, but it's certainly the basis of some of the measures in this bill. It obviously gives small businesses a differentiated way in which they can restructure themselves, compared to the big corporates. The big winners in insolvency are always the lawyers and the accountants and the services firms; they never lose money in these processes. It's a bit like divorce lawyers: they're the only ones you can absolutely guarantee are going to make a profit out of the process. This legislation and this reform ensures that small businesses—those where their debts are under a million dollars, which is a comparatively low figure; those that are employing fewer than 20 people—get the best chance of keeping their heads above water through a short-term difficult period of time so that they, in turn, can trade their way out of that short-term financial distress. It gives them the best chance for their business succeeding and thriving into the future.

My hope is that there will be a very large cohort of businesses, and their commensurate workforces, that ordinarily, under the old regime that we're seeking to replace with this legislation, would go into the insolvency and liquidation process much sooner can, by giving them that extra leeway, avoid that and go on to thrive and contribute significantly to the Australian economy. That's the hope. I've got a lot of confidence, based on the changes we are making, that a lot of good will come from this. I commend the Treasurer and the government for putting it forward, and I commend the bill to the House.

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