Many small businesses seem to operate with the owners oblivious to the legal structure through which they conduct their business. The legal definition hardly seems relevant. It is only when insolvency hits that a business owner might think – “hang on, if I’ve got a company – I suppose I’d better check that – what’s this thing about insolvent trading?”
The law supports that oblivion.
The Fair Work Ombudsman (FWO) has conducted a review of the definition of small business in a contentious context, as to whether a “small business employer” – one that employs fewer than 15 employees – should be defined more broadly, so as to exempt more businesses from responsibilities under the Fair Work Act 2009 (FWA), a contention representing the usual historic tensions between old capital and new labour: see Review of the Fair Work Act 2009 ‘small business employer’ definition
The FWO recommended staying with the contentious “under 15 employees” definition of small business.
Putting that contention aside, the FWO considered whether there was a need to align the FWA small business employer definition with other small business definitions, to achieve greater “interoperability”. These definitions include the ASBFEO Act 2015 s 5 which refers to under 100 employees or revenue under $5m; section 6D of the Privacy Act 1988 refers to annual turnover of under $3m; the ITAA 1997 at s 328 refers to aggregated turnover of under $10m: see The Parliamentary Joint Committee and “small business insolvency” – Murrays Legal.
However, the economics focused Productivity Commission has said in the past that aligning small business definitions across different regulatory frameworks may result in inflexibility and higher costs for businesses: [1] Regulatory Engagement with Small Business – Research report
What is small business?
“Small business” is an informal term, hardly one of legal precision and substance. Presumably neither the FWO nor the PC would advise a small business owner to contract with a business name or letterhead.
The Minister for Small Business has recently explained small businesses in terms of their legal status that
“a majority of them are sole traders, only around 30 per cent are incorporated”.
Which makes the so called “small business restructuring” process under Part 5.3B a confusing misnomer; and even that term is not defined. A small business owner in the Minister’s 70% category might query why the ATO is not as generous in offering her small business the same concessions as the ATO gives companies under the Part 5.3B process.
SME insolvency law should be framed to accommodate the reality of small business, rather than according to the convenience and embedded old-world perspective of its players.
As Mr Bruce Billson (ASBFEO) explained to the 2023 PJC inquiry, for small businesses, the
“law basically says we’ve got the oil of an enterprise and the water of an individual”. But “in the space we operate in, virtually everything is salad dressing …”, and
“the current insolvency system assumes a neat distinction between a business and an individual, whose distressed financial circumstances do not intersect with one another. Small and family businesses are rarely so neatly arranged. … The utility of the insolvency system would benefit from a better recognition of this blending of business and personal interests”.
Without any expectation that such a law reform issue would ever be considered, despite the call by some for a so-called “root and branch” review of insolvency, in the end, the claimed flexibility and lower costs for businesses referred to by the FWO might balance out the need to know on what basis the business could ultimately be either liquidated or bankrupted.
See also Small business sole trader insolvencies – Murrays Legal
