Business set-up, transfer and closure

• Businesses are set-up for a variety of reasons and in any one year there is a churn of business entries and exits in Australia that is comparable with other countries. Most businesses start and remain small, and a very low proportion can be described as innovative.
• While it is relatively easy to start a business, a number of longstanding issues with specific regulatory requirements, regulator engagement and funding remain unaddressed. These make entry for some new businesses unnecessarily complex or costly.
• Some new business models, particularly those that exploit digital technology, challenge existing regulatory arrangements or cause associated businesses to operate in regulatory grey areas.
  • An across-the-board legislative shift is required to enable explicit exemption of classes of new businesses (for a fixed period) from particular regulatory requirements, where these deter entry but exemption does not threaten consumer, public health and safety, or environmental outcomes.
  • The default position of governments should be to allow entry of innovative new business models, not restrict them or protect incumbents.
• There is a growing focus among governments on high growth potential start-ups and the role entrepreneurial communities play in start-up success. The significance of entrepreneurial communities requires a more nuanced role for government. Any assistance programs must work within, and not distort, existing entrepreneurial communities to enable the capture of knowledge and network spillovers, beyond what would otherwise occur.
• Access to finance is not a significant barrier for most new businesses - most, with good reason, do not seek finance from external sources.
  • New financing platforms, such as peer-to-peer lending, are helping to fill a gap in unsecured debt finance available from the major financial institutions.
  • The planned new regulatory framework for crowd-sourced equity should balance the financing needs of business against the risk preferences of different types of investors.
  • High growth potential start-ups are generally able to attract angel and venture capital funding from Australian or overseas markets.
• Most businesses are closed or transferred without financial failure. Governments' role in such situations should be limited to provision of clear guidelines on regulatory requirements and arrangements, and ensuring government processes are timely.
• Some specific reforms to Australia's corporate insolvency regime are warranted, but a wholesale change to the system, such as the adoption of the United States' 'chapter 11' framework, is neither justified nor likely to be beneficial.
  • Formal company restructuring through voluntary administration should only be available when a company is capable of being a viable business in the future.
  • A 'safe harbour' defence should be introduced to allow directors of a solvent company to explore, within guidelines, restructuring options without liability for insolvent trading.
  • A simplified liquidation process should be introduced to reduce the time and expense of winding up businesses with few or no recoverable assets.
  • All directors should be required to obtain a director identification number.
• The default exclusion period and restrictions on bankrupts in relation to access to finance, employment and overseas travel should be reduced from 3 years to 1 year, with the trustee and courts able to extend this period to prevent abuse. The obligation to repay debts should continue to be required for 3 years or until bankruptcy discharge.

Broadly, recent trends in business set-ups, transfers and closures and key drivers of these are discussed in chapter 2.

Chapters 3 to 7 examine a wide range of regulatory, institutional and financial factors that influence primarily set-ups, but ultimately can also impact on the manner and ease with which businesses close.

Chapters 8, 9 and 10 consider innovative new business models (including in business payments systems) and the nature of the business ecosystem that best encourages and supports these models.

The closure of businesses - through transfer, personal insolvency (bankruptcy) or corporate insolvency - is examined in chapters 11 to 15.

The appendices cover the inquiry processes (appendix A) and provide further detailed data (appendices B to F) to support the chapters.