I read with (yes) horror that the Australian parliament is seriously intending to reduce bankruptcy periods from 3 years to 1 year. If you are a business owner, this should frighten the heck out of you!
These days, bankruptcy is becoming more and more common and the associated negative stigma of being bankrupt is becoming less and less. It’s becoming (dare I say) easy to go through a bankruptcy. There are experts who will, in fact, help you to go through the experience without virtually any consequence. In many cases, they close the business on a Friday, walk away from their debts and resume business again on Monday. Yes, there is more to it behind the scenes.
Ok, so why am I so against this? I should point out I am no insolvency expert … but I’ve been around the block over 30 years … I see how things work.
I have three main reasons why I think this new bankruptcy rule is a horrible idea, which are:
Tax & Super Avoidance.
The bankrupt usually walks away from their tax and super debts. You’re thinking “so what!” I know none of us loves paying taxes but the reality is that it’s our taxes that keep our country going. It pays for our doctors, our teachers, our Police, hospitals and our infrastructure. Most working Aussies pay their share – so why should some find a loophole to avoid their contribution to our community? Why is it good enough for you and me to pay our taxes, and others (legally) get out of their commitments?
Other businesses suffer.
When someone files for bankruptcy, others suffer. For example, a building company goes into bankruptcy. Down the chain, the trades lose out. The plumbers, tilers, electricians, hardware suppliers, timber yards … everyone else loses out. Gone are the days of even seeing 10c in the dollar. The firm handling the insolvency gets paid, works until the money is gone, and nothing is left. (Again, yes, simplified). So in this example, the builder goes under and then everyone else is left to struggle to move past their losses. For a small business, to lose $20K can really hurt; losing $100K can be the thing that then sends them under. It just has a snowball effect that is perpetuated. If you are in business, expect to suffer yourself from those you supply taking the easy way out of paying your bill and avoiding their commitment to you. Be afraid, be very afraid!
It’s an easy quit.
The concept is that the Government believes that many entrepreneurs will experience failure many times. They believe valuable lessons will be learnt and this concept will “provide the opportunity for a fresh start as soon as possible; i.e. accept your losses”. So in other words, it’s ok to fail, in fact, the Government expects us all to fail, and that’s ok. Gosh, I must be old school. Yes, failure happens and we should learn from it. Those lessons might be tough lessons that give us a bit of pain. That pain is a lesson. Quite bluntly, not everyone is cut out to be in business. Why go time and time again with failure after failure? Instead, the government wants to say it’s ok to fail and give us a lollypop for our ‘efforts’. There is less incentive to get it right to start, to put in that extra effort, or to educate ourselves up front, to avoid the mistake in the first place.
Over the years, I’ve known a good number of people who have gone bankrupt. Some were the loveliest people who even did the right thing and paid back their debts even though they didn’t have to. Some became bankrupt because larger businesses above them went under and it left them devastated. Then there are those I call the ‘Career Bankrupts’ who use the system to avoid their debts and responsibilities, often many times over and just keep on doing what they do best; rack up the bills and walk away unscathed. No remorse, no regret. For these folks, I’m sure they are going to love these new rules. For the rest of us, we will have to learn very quickly how to be smart by:
- Identifying the ‘Career Bankrupts’ and avoiding doing business with them
- Reducing the credit we offer, ideally offering virtually no credit
- Minimising our risk in as many ways as possible.
For those businesses that supply recurring products or services, we have a better chance of dealing with this situation if we remain firm and freeze products or services the moment the account falls overdue. Weaken, and you may well regret it. For businesses that offer once off services or products, I feel for you as you cannot see a pattern forming.
Watch out for my upcoming article … how to avoid getting caught out by someone not paying you – whether a potential bankrupt or some other scenario.
Check out my business coaching services and call me on 0411 622 666.