Small Business Restructuring (SBR) was introduced by the Federal Government on 1 January 2021 to enable eligible business to restructure their debts. Unlike voluntary administration, the company directors remain in control of the business throughout the SBR process and the business continues to operate as usual.
Why should Small Business Restructuring matter to you?
Small Business Restructuring is becoming increasingly relevant given the current financial climate. Not only is knowledge of the process important for businesses who have found themselves facing increasing debt, but also for creditors who are asked to vote on a restructuring plan. Having a general understanding of this process can also enable business owners to take proactive steps in the future should they find themselves with increasing debt.
Eligibility
To be eligible, the total liabilities of the company must not exceed $1M, all employee entitlements must be paid, and all tax returns lodged. The company must not have engaged in SBR previously or a simplified liquidation process within the previous 7 years. Therefore, the company must first ensure all its accounts are in order before commencing SBR.
The process may also be utilized by business who have ceased trading and wish to finalise outstanding liabilities.
What does Small Business Restructuring involve?
The restructuring process commences with the appointment of a restructuring practitioner by the board of directors. The RP is responsible for verifying the company’s business, property, affairs and financial circumstances and assisting the company in forming a plan of how it proposes to address its existing debts.
While the directors remain in control, the approval of the RP is required for decisions outside the ordinary course of business, such as the proposed sale of core assets.
The plan is presented to the affected creditor and must be approved by a majority by dollar value. If a majority vote is not obtained, the restructuring process concludes and the company resumes business as prior to engaging the RP. All debts remain due and payable. While the goals of SBR is to reach an agreement to manage existing debt, a benefit is that the failure to reach such agreement does not automatically result in the company being placed into administration.
Notification and Inquiries
Only those creditors who are presently owed money (affected creditors) are notified that the company has entered into SBR. There is no obligation to alert any other stakeholders, including employees.
The RP is required to undertake reasonable inquiries to verify the company’s financial circumstances. The level of investigation this requires often depends on the quality of the business’ accounting records. However, as companies must be up to date with their accounting to be eligible for SBR, the investigation process is generally much less intrusive than other processes.
Costs
A fixed fee is determined based on the complexity of the matter and number of creditors. Where a plan is accepted by the creditors, the RP is also paid a percentage of the amount offered in the plan for management of the plan. Another benefit of the SBR process is these fees are generally significantly lower than those for voluntary administration, given the nature of the reporting requirements and management arrangements.
Does Small Business Restructuring work?
Reports confirm that SBR is proving to be a highly successful method for companies to restructure their debt and regain control of their business’ finances. The ATO, as a common creditor, has generally been supportive of SBR, approving the majority of plans presented to it.
Where do we step in?
Having lawyers involved both before and during SBR can be beneficial to protecting the interests of both the business and the directors personally. We can held by:
- Enforcing any debts owing to the business
- Assessing the liabilities and obligations of the business and directors personally
- Assessing how the SBR process may affect any existing legal proceedings.
If you are a credit reviewing a proposed plan, a lawyer and restructuring practitioner can assist in advising you on your position should you choose to accept or decline.
Should you have any questions about small business restructuring or require legal advice for your business generally, please contact our team by calling
1300 892 237
or emailing
[email protected].
