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Beyond Bankruptcy: Alternatives for insolvent businesses & owners


Australian small businesses are facing a perfect storm. Rising land taxes and interest rates are forcing landlords to hike rents, adding to existing pressures from the ATO, higher operating costs, and staff requirements.

This financial squeeze is leading to a concerning trend – a dramatic rise in business closures and personal insolvencies for owners. While the financial landscape for small businesses might seem bleak, there are options. This article explores the factors contributing to the rise in business insolvencies and dives into alternative solutions available to struggling business owners. From the Small Business Restructuring (SBR) process to voluntary administration and Part X Agreements, there are ways to navigate financial distress and potentially save your business, or at least protect your personal assets.

“Rising land taxes and higher interest rates are forcing many Australian landlords to hike up rents on their commercial properties, adding to small business owners’ pressures and leading to rising business and personal insolvencies. And it could put personal assets at greater risk,” says insolvency and business turnaround specialist Jirsch Sutherland.

“It’s having a real domino effect,” says Jirsch Sutherland Partner Malcolm Howell, a Registered Liquidator and Bankruptcy Trustee. “Landlords are under pressure from higher land taxes and rates and are having to increase rents, which then adds to small business owners’ financial burdens. They’re already under fire from the ATO and banks, not to mention facing higher operating costs and superannuation requirements. The stark reality is that the expenses involved in running a business and retaining staff is proving challenging for many.”

The result is an increase in business-related personal insolvencies. According to Australian Financial Security (AFSA) figures, business-related personal insolvencies made up the bulk (27.3%) of insolvencies in the year to December 2023. And the latest Alares Monthly Credit Risk Insightsshows insolvencies in March peaked at the highest monthly level seen in many years – more than 50% above pre-COVID levels. 

“The ATO continues to put pressure on business owners, with a high level of Director Penalty Notices (DPNs) being issued and business tax debts being disclosed. Court recoveries are also high, as both the ATO and big four banks chase monies owed,” says Howell.

“There’s now an even greater risk of personal assets being exposed, as often business and personal assets are intertwined. I urge business owners to start monitoring their own position even more closely and consider whether their business and personal assets are protected. And if you are in financial distress, remember there are now more options than ever before, like the Small Business Restructuring (SBR) process – particularly if you seek help early.”

The latest Alares report shows that SBRs continue to account for a growing percentage of all insolvencies, spiking in March amid mounting pressure from the ATO. “As the ATO continues to disclose overdue tax debts, as well as issuing Directors Penalty Notices and warning letters, more small business owners are turning to the SBR process for relief,” says Alares Director, Patrick Schweizer. “Small business lending often involves security over the business owner’s home or other personal assets. These assets can be at risk when the business faces financial hardship. We have seen a marked increase in small business failures evidenced by the recent spike in SBR appointments.”

For those businesses that don’t meet the SBR criteria, Howell says another option could be voluntary administration. “It provides an opportunity for a business to continue trading, while giving the company breathing space and address outstanding debt in a more orderly manner,” says Howell. “VAs can be an excellent business rescue solution. It takes the pressure off the directors and gives the business the best chance of survival.”

And from a personal insolvency perspective, there is also an alternative to bankruptcy: a Part X Agreement. “The word ‘bankruptcy’ brings with it numerous negative connotations and unfortunately, people often think declaring bankruptcy is the only way out of their financial woes. However, a Part X Agreement is an alternative,” explains Howell. “It’s designed for individuals who are financially insolvent and allows you to appoint a controlling trustee who calls a meeting of creditors and negotiates a binding formal agreement for debt repayment that’s tailored to suit your individual financial circumstances.

“There really are more options than ever at both a corporate and personal insolvency level, so it’s so important to speak with an expert in the field to help you navigate the best path forward.”

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