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The Government’s Green Paper on National Credit reform canvasses the possibility of affording small businesses the same degree of protection as consumers under consumer credit legislation. Such a step will enable manufacturing businesses with fewer than 100 employees, and other businesses with fewer than 20 employees, to be treated as “consumers” with all the concomitant privileges that this classification implies, including the ability to rely on hardship provisions when unable to pay their debts.
Small businesses already benefit from hardship provisions under compulsory external dispute resolution (EDR) scheme Rules imposed on consumer credit providers, with some anomalous results. The definition of “consumer” under the Rules of the Credit Ombudsman Service Limited (COSL) – one of two appointed EDR schemes for Australian consumer credit providers – includes sole traders, partnerships and corporations, thus widening the ambit of the scheme to include commercial dealings between credit providers and businesses. This effectively enables small businesses to lodge hardship complaints and avoid payment of their debts for extended periods until complaints are resolved, while continuing to trade. Although it may be argued that this inclusion is in line with protections available to small businesses under the Australian Consumer Law, the effects are more far-reaching in relation to consumer credit transactions, potentially impacting on the power of the Courts to make winding-up orders under the Corporations Act 2001 (Cth) and also countenancing insolvent trading.
This paper examines the position of the small business as consumer under existing consumer protection legislation, and the incongruities arising from this characterisation in the area of consumer credit regulation. It argues that such an inclusion impacts significantly on commercial dealings and could have a lasting effect on the availability of credit to small businesses.