Is Small Medium Enterprises — the heartland of the Australian economy?

05/12/2014 by Michael Jones

It is clear that SMEs are the back bone of the Australian economy and at a recent function launching the Jones Partners Report into insolvency administrations in Australia Craig James, chief economist of the Commonwealth Bank said that 97% of Australian businesses employ less than 20 employees. It is therefore not surprising that over 80% of companies that fail are in this category. The businesses that dominate the corporate failure statistics roughly parallel the businesses in the SME sector and are very highly represented amongst construction, retail and professional services.

The Jones Partners Report looked in some detail at the effect on the Australian economy of the failure of companies in the Australian SME space. The report demonstrates the remarkable fact that this sector contributes substantially more to unemployment than the failure in relation to large companies which often gets much more media attention. The attached video excerpt on the significance of small medium enterprises (SMEs) provides an interesting narrative on the role they play both in respect to the Australian economy and corporate and personal insolvencies.

In the SME sector it is impossible to separate the ownership of the business from the management. Having regard to the fact that we now know that management failure is the major cause of company liquidations it is clear that these issues need to be addressed before any effective turn around program can be implemented.—Turnaround is nevertheless still achievable—

One method used in the turnaround management of companies is the Voluntary Administration process found in part 5.3 A of the Corporations Act

This process usually involves creditors accepting a compromise in relation to the outstanding debt potentially including extended payment terms

Voluntary Administrations are a formal process involving the appointment of an Administrator who prepares a report to creditors and convenes meetings the purpose of discussing the future of the company

Creditors then vote on whether or not to accept the proposal and this vote is based on numbers and value so clearly not all creditors are required to agree for the proposal to be binding

The procedure is very effective in the Australian SME sector but it does require a clear and accurate identification of the underlying problem together with a credible argument that the problem has been rectified or that the very least there is a convincing plan to achieve that end

If this cannot be done liquidation may be the only alternative

This of course does not always mean that the business is closed. It is possible in some situations of the business to be sold as a going concern to new owners. This preserves the goodwill of the business and can have the effect of saving jobs

Jones partners handle many turnaround assignments particularly using the voluntary administration process. Jones Partners is expert at investigating these issues and providing professional advice and practical solutions. We can advise on a range of solutions that assists companies in difficulty Including Voluntary Administration, Receivership and various forms of Liquidation. In relation to personal insolvencies Jones partners has 4 registered Bankruptcy Trustees who are extremely active in assisting individuals resolve their personal financial difficulties using various parts of the Bankruptcy Act including Part 10 (Personal Insolvency Agreements) and Annulments pursuant to section 73 Of the Bankruptcy Act.