From the Mining Boom to the Ideas Boom - What it All Means

Peter Hillig 01-02-2016

There’s been a lot of talk about innovation in the media since Prime Minister Malcolm Turnbull launched the National Innovation and Science Agenda last December. We know the economy is transitioning away from the mining boom, but what does this new political emphasis on ideas and innovation involve?

According to the PM’s innovation statement, the aim of the agenda is to create “the modern, dynamic, 21st century economy Australia needs.” Mr Turnbull noted that “Australia is falling behind when it comes to commercialising good ideas and collaborating with industry,” and put forward a number of strategies aimed at improving Australia’s position. These include:

  • Better access to capital for innovative start-ups. 
  • Development of a culture that encourages innovation and willingness to take risks, including the willingness to risk failure, as it is through failure that we learn and grow.
  • Greater collaboration between research organisations and business in order to commercialise innovative ideas. 
  • A strong focus on talent and skills training for students. 
  • Taking steps to attract innovative talent to Australia.

Insolvency Law Changes – a Less Punitive Approach?

The innovation strategy also involves proposed changes to insolvency laws, as recommended by the Productivity Commission. The changes suggest taking a less punitive and harsh approach to insolvency, and providing greater incentives for financially distressed companies to restructure.

It is anticipated that these measures would help more businesses avoid closure and the subsequent losses to stakeholders that inevitably occur.

The proposals include:

  • Development of ‘safe harbour’ provisions for directors. This would provide company directors with more time to receive the guidance they need for business restructuring, and to ensure the best outcome for employees, creditors and other stakeholders. 
  • Prohibition on ipso facto clauses which allow parties to terminate contracts with trading partners that have become insolvent.
  • Reduction of the bankruptcy period from three years to one.
    It is considered by some commentators that these changes will be particularly relevant in light of the current slower economy and the promotion of innovation and risk-taking – factors which will inevitably lead to some business failures.

Insolvency Statistics from the Australian Securities & Investments Commission (“ASIC”)

So how are businesses faring in the current climate? ASIC has released a number of key insolvency facts and figures.

During 2014-15:

  • 8,904 external administrator reports were lodged with ASIC. 
  • NSW was represented in the highest proportion of all reports compared to other states and territories (more than 40%). 
  • 79% of all reports involved businesses with fewer than 20 employees – a large majority of which had five or less. 
  • The industries most affected were services at 28%, construction at 21%, accommodation and food 10%, retail trade 9%, transport, postal and warehousing 5.5%, and manufacturing 5%. 
  • Possible misconduct by directors included insolvent trading 58%, obligation to keep financial records 38%, and care and diligence by directors and officers 33%.
  • Dividends to unsecured creditors in 97% of cases was less than 11 cents in the dollar.
  • In NSW, the top nominated causes of failure were:
    - Inadequate cash flow 18%;
    - Poor strategic management 17.5%;
    - Poor financial control / lack of records 16%;
    - Trading losses 16%;
    - Poor economic conditions 7%; and
    - Under-capitalisation – 7%.

The September Quarter 2015

During this period there was an overall increase of 8.3% in companies entering external administration compared to the April-June quarter, and a 7% increase for NSW alone.

Also in NSW, court liquidations rose by nearly 48%, receivership appointments fell by 2%, and director-initiated winding up appointments fell by 11.5%.  The significant increase in Court liquidations mainly reflects the more aggressive ATO debt collection activity in recent times.

ASIC Enforcement Outcomes – January to June 2015

ASIC achieved 323 enforcement outcomes in the six-month period from January to June last year.

These concerned the areas of market integrity, corporate governance, financial services, and small business compliance. They included 205 criminal and 11 civil proceedings, 86 administrative remedies, 18 enforceable undertakings, and three warning notices.

ASIC’s activities in this period included:

• Commencement of investigations – 136.
• Completion of investigations – 137.
• Individuals charged in criminal proceedings – 10.
• Criminal charges laid – 82.
• Issuing of infringement notices – 52.
• Banning of individuals from financial service industries – 25.
• Disqualifying of directors – 19.

Cases included:

(a) a former Queensland-based director who was convicted of managing a company while disqualified (sentenced to six (6) months jail, wholly suspended, upon entering into a three (3) year good behaviour bond); and

(b) the former Chief Financial Officer (CFO) of ABC Learning Centres Limited (ABC) was sentenced to 18 months imprisonment, wholly suspended, for making available false or misleading information about the affairs of ABC that he knew to be false or misleading in material particulars.

It certainly appears that businesses are generally compliant and law abiding! We also wait with interest to see the outcome of the proposed changes to insolvency laws, and the effect of the new innovation agenda on Australian business.

Smith Hancock Director, Mr Martin Walsh Registered as an Official Liquidator by ASIC

The level of expertise in the team at Smith Hancock continues to be acknowledged, with Martin recently registered as an official liquidator by ASIC.

Achieving this registration with ASIC is no small feat, as it requires relevant qualifications as well as considerable experience in the successful winding up of insolvent companies.

Martin has had more than 13 years of experience in advisory services and formal insolvency, which has provided him with exposure to a broad range of industries including retail, hospitality, property and construction, manufacturing, and telecommunications.

Services Offered by Smith Hancock

In addition to the traditional formal insolvency appointments such as Voluntary Administrations, Receiverships and Liquidations, we undertake cost cutting reviews, business reconstruction advice, investigating accountants reports, partnership/ shareholder disputes, forensic accounting, business valuations plus many other related services.

Please telephone or email us if you have a matter in which you consider we may be able to assist.

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