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New insolvency laws: 4 actions small business directors must take

One of the most unfortunate outcomes of the pandemic is that many businesses who started 2020 confident about their prospects could never have imagined confronting challenges that have put many of them right on the edge.

The Government’s COVID Safe Harbour laws kept many businesses in play last year, but these safeguards are no longer in play.

With Australia’s new insolvency laws in place, small business owners have the opportunity to keep control of their business while it is restructured, but they must be aware of restructuring’s likely negative impact on their cashflow.

ALSO READ: The changes in insolvency & restructuring rules that could catch out Australian businesses

There are four key actions that small business owners should take immediately, to ensure they are well positioned once they, or their suppliers, following the end of JobKeeper.

  1. Talk to a professional about consequences of restructuring

It’s crucial for small business directors to review their position, seek professional advice and have the tough conversations with their advisors as soon as possible.

Hall Chadwick’s Blair Pleash says talking about restructuring options and the funding it will require is the first step in dealing with this issue, and this early action means directors may have more options.

  1. Be aware of cash flow impact

One of the aims of the new legislation is for directors to seek help earlier and end up with a better outcome, given they will retain control while the business is restructured.

The obvious cashflow challenge under the new system is that suppliers become aware of the notice of intent to ASIC and withdraw credit altogether or put in place “cash on delivery” terms. 

Small businesses considering the debtor-in-possession restructuring system should act quickly to put in place arrangements that secure the working capital they’ll need to deal with tighter supplier credit terms.

  1. Find funding that will assist 

Without the support structure put in place during the worst of COVID-19, the ATO, banks, landlords and suppliers are now in the position to take more direct enforcement action.

One logical step that small business directors could consider in order to generate cash is to find and lock in a method of funding that accesses the cash tied up in an unencumbered receivables ledger.

Financial products such as invoice finance can help SME directors not only to address any original cashflow issues within their business, but also to address any new issues created by the restructuring process.

ScotPac worked with ASBFEO to create a Business Funding Guide that outlines the main range of funding options open to small businesses – download it here.

It’s important to be aware of the range of SME lending options available, and to seek advice about which are suitable for restructuring situations.

  1. Put the funding in place before you need it

Having systems in place as soon as possible will give small businesses the best chance of turnaround success. 

Restructuring requires funding that is fast and able to be put in place without red tape. 

This is where products such as invoice finance will be in demand, helping to ensure that businesses undergoing restructuring have the working capital to see them through.

There are funding products available where the business is only charged when they draw down. It makes sense to have such a facility in place so it can be accessed quickly if required. 

ScotPac’s FactorONE has a lending solution suited for this environment, providing access to funds within 48 hours and a low-document application process with no property security required.

Unlike many non-bank lenders ScotPac has the ability to lend higher limits, being able to fund from $10,000 to $100 million. 

On top of this, borrowers have the security of the trust and reliability that comes with ScotPac having funded the small business sector for more than 30 years.

We’re all willing 2021 to be a kinder year to the small business sector than 2020. However things pan out, it’s important for SME directors to be prepared. 

Even if a small business is not at the crisis point now, taking action now to get in place a suitable style of funding means it is ready to draw down from, if and when the need for restructuring arises.


Contact ScotPac HERE or on 1300 207 345 to learn about our range of finance options that can be tailored to fit you and your business.

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