Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Hansard source

Many Australian small businesses in particular have had the year from hell. We entered the year on the back of a devastating summer associated with bushfires across the country. Many of those fires destroyed many small businesses throughout Australia and left a lot of them in a very precarious financial position. Then, just as many of those small businesses were starting to get back on their feet, we were, of course, hit with COVID-19, which unfortunately resulted in the closure of many small businesses but also in many Australians losing their jobs in these small businesses.

There's been very, very little support that this government has instituted as a result of the recent budget that directly assists small businesses. Many of the programs that the government put in place in the budget simply miss the mark. I'm talking about some of the wage subsidies, particularly those that offer nothing for older workers, which is the group of Australians who really do need support at this point in time.

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 is an attempt by the government to liberalise insolvency laws and implement some significant changes to the Australian insolvency framework, aimed at reducing the cost of external administration for small businesses and allowing more small businesses to remain viable. While Labor supports the intent of this bill, and we certainly will see it pass through this place, there is more that could be done. This really is a missed opportunity, particularly given the fact that the government didn't really consult with industry, particularly the small business industry, about the effects of these reforms before they were brought to parliament.

The key features of the bill are the implementation of a new debt restructuring process for small incorporated companies and a new streamlined liquidation pathway for small incorporated companies. The new debt restructuring process provides a debtor-in-possession model, which will allow small business owners to remain in control of their businesses while implementing a restructuring plan that's been agreed by their creditors. The plans will be developed in conjunction with a new category of independent small business restructuring practitioners.

Many have described these reforms and these changes as similar to the United States' system of chapter 11 bankruptcy. Although there are some similarities, I think that there's a fundamental difference between the operation of those two systems.

The government also says that it's introduced safeguards to prevent the process from being used for corporate phoenixing. We all know what phoenixing is. It's an insidious process of particular companies, that owe money to creditors or people they employ, sending the company broke so that the company dissolves. The owners of that company then simply go, because we have limited liability through our corporate structure, and establish another company under another name and begin trading once again, leaving the creditors and many of their employees in the lurch. There is nothing they can do, because our corporate laws don't allow that piercing of the corporate veil to get at the individual who is running the organisation—or, where they do, they make it very difficult for organisations to chase that process.

The practice of phoenixing costs the Australian economy about $5 billion a year. It has been a big problem for the Australian economy. The government has listened to what Labor proposed at previous elections around director identification numbers so we can chase directors who owe creditors and leave employees with unpaid entitlements into the future. It's pleasing that the government adopted that reform put forward by Labor in the parliament.

This bill also introduces a new simplified liquidation pathway for small businesses designed to reduce the cost of winding up businesses that will not survive. But the fact is that the legislation won't assist many small businesses that need help. The reason this legislation doesn't assist many of those small businesses—and it is remarkable that the government doesn't know and understand this—is that most small businesses in Australia are not incorporated entities. They are not bodies that come under the remit of the Corporations Act. They are sole traders and partnerships. They are the Australians who really do put it all on the line when they establish a small business and risk many of their personal assets to establish those businesses. They are given no relief and no support by these changes, because they are not corporate entities, to which this reform applies. So most Australian small businesses, sole traders and partnerships won't benefit from these amendments to the Corporations Act to make restructuring of their debts easier.

Coupled with that, the problem that many of these sole traders have, particularly those who are operating as tradies in the construction industry—I have spoken to a lot of them in the electorate I represent and they often talk about issues associated with phoenixing and not being able to chase people who owe them money—is late payment of the bills they have with organisations that have done work for them or creditors or organisations that they have done work for. This is a huge issue, particularly in the construction industry and particularly in private enterprise. Sole traders, the many Australians who put their personal assets on the line, are really doing it tough, particularly on the back of the bushfires and COVID. They are basically being ignored by the government through the changes here to this particular element of the Corporations Act. They won't benefit from these changes that make the restructuring of debt easier.

Changes to bankruptcy processes are complex and require extensive consultation. So it's concerning that industry leaders have already declared that the Morrison government's consultation around this was dramatically inadequate. Many of those concerns were raised by stakeholders in the consultations that Labor did with them in determining our position on this bill, including the Australian Restructuring Insolvency and Turnaround Association, the major accounting peak bodies, the banks and the Australian Chamber of Commerce and Industry. The consultation process for this legislation has been extremely truncated considering the scale of the changes proposed. Stakeholders had only five days to make submissions on the exposure draft of the bill, and those submissions are yet to be published. And much of the detail of the bill, like a lot of the things that are being done by the government at the moment, will be contained in regulations rather than in the substance of the bill.

So the consultation process has basically been messed up, as usual. It has been extremely brief, particularly considering the scale of what's proposed here. Labor wants to see sensible reform to insolvency laws, but we want to make sure that they hit the mark, that they do the right thing by small businesses throughout this country and provide them with the support and the structure they need to succeed into the future. We've seen time and time again with this government, particularly the Treasurer, rushed-through, ill-considered legislation without adequate consultation or consideration in the drafting of the legislation. We've even seen instances where the government's had to come back and correct some of those inconsistencies and mistakes they've made in that legislation because they've had those problems with rushing through that legislation.

That's also why Labor will be moving amendments to the bill, to ensure that a rigorous review process and a sunset clause is in place for this legislation. That's not because we disagree with the idea of a streamlined insolvency and restructuring process but because we know the stakes are so high if we get this wrong. If we get this legislation wrong and it doesn't act as intended, the stakes are extremely high for many Australians who put their savings and their personal assets on the line to establish small businesses, particularly when they get into those difficult circumstances. A number of economic commentators—the RBA, Treasury—are forecasting that there will be an uptick in insolvencies and the closure of small businesses in particular on the back of the COVID-19 pandemic throughout the country, particularly when a lot of the government support is scheduled to be withdrawn at the end of March next year. We all know that the economy won't be recovered by then. Unemployment is forecast to continue rising throughout 2021, so we know the economy won't have recovered. Yet much of the support will be withdrawn, and unfortunately we're probably going to see an uptick in the number of insolvencies and we're going to see small businesses doing it tough throughout the country.

That's why Labor wants to make sure we get this process right and that it's not rushed. Our amendments will ensure that these very significant changes to the Corporations Act are appropriately reviewed and considered before being made permanent. It's crucial that distressed businesses have access to the right processes and structures necessary to reboot their businesses or wind them up in an operation that is orderly and fair. Indeed, many of those who have the most to lose—as we've seen so many times when restructuring or insolvency goes wrong, it's small businesses and subcontractors who are most affected—end up holding those unpaid invoices. It's not fair to many of those smaller businesses who don't have the financial resources of many big businesses to be able to chase up some of those unpaid invoices as creditors. For an ordinary Australian tradie who works as a subcontractor for a larger business, a poorly run insolvency process can lead to disaster for them personally, particularly if it's a tradie who is doing the principal amount of work for a larger contractor and is employing apprentices, trainees and other employees. For them, there's a lot at stake, particularly if 80 to 90 per cent of their work is with the one larger business.

So, it's important that we get these reforms right. If things go wrong, sole traders may be left struggling to meet payments on their house or to put food on the table for their family. Too many small businesses won't survive as a result of the Morrison government's 'snapback'. Streamlining the process for small businesses is something Labor supports, but we want to see that it's done properly. That's why we're insisting on this review process taking place, and on the sunset provision.

This government has a very poor record when it comes to delivering for small businesses and delivering support for sole traders and partnerships in particular, with only $1.8 billion of the $40 billion in small to medium enterprise loan guarantees having been delivered and the repeated failures to fix the payment times for SMEs throughout this country. I mentioned earlier how important that particular issue is to many small to medium businesses, particularly those operating as independent contractors and as sole traders.

It's clear that the Morrison government still hasn't done enough to support small businesses. It's clear that it hasn't done enough to consult with small businesses and ask them about what would assist them in the running of their businesses and a proper process to ensure they get the support that they need around insolvency to either continue to try to trade out of it or wind up in an orderly manner. Australians deserve a plan from the Morrison government that promotes growth and protects jobs. Support for small business is going to be crucial in that promotion of growth and in that protection of jobs. That's why Labor are insisting that we can make improvements to this bill to ensure that small businesses get the support that they deserve and that employees maintain their jobs.

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