Did you know there are options to restructure your debt and give your business a lifeline?
Looking to improve cash flow, reduce debt & keep trading ?
The small business restructuring process (SBRP) may be the solution you need to take back control.
The SBRP aims to provide a streamlined and more affordable approach for financially distressed small businesses to restructure their debts so they can continue operating and maintain control of their operations.
The SBRP is designed for businesses that meet specific eligibility criteria, including:
total liabilities under $1 million (including secured and related-party debt)
be current on tax lodgements
all employee entitlements paid (e.g. superannuation)
be a company (Pty Ltd entity)
not have undergone restructuring or been subject to a simplified liquidation process within the preceding seven years
none of the directors, including those who served within the past 12 months, have directed a company that went through the SBRP or simplified liquidation process in the previous seven years, unless exempt under regulations
How does SBRP work?
Determining Eligibility and Appointing a Small Business Restructuring Practitioner:
Upon establishing eligibility, the company's directors appoint an SBR Practitioner. This individual, typically a registered liquidator, is appointed to manage the restructuring process and has the authority to investigate the company’s affairs.
The appointment of the SBRP is reported to ASIC and the company’s creditors within 1 business day, after which unsecured and some secured creditors are prohibited from taking actions against the company, and any personal guarantees cannot be enforced.
Drafting the Small Business Restructuring Plan:
The SBR Practitioner collaborates with the company to draft a restructuring plan over the following 20 business days, during which the company can continue to operate as usual. This plan typically proposes a specific payment to unsecured creditors over a period not exceeding three years.
The SBR Plan must identify the property available to creditors, outline the SBR Practitioner's remuneration, and state the execution date. Alongside this plan, various documents are prepared by the restructuring practitioner. The plan is issued to creditors and ASIC.
Presenting the Small Business Restructuring Plan to Creditors:
The SBR Practitioner presents the plan to the creditors. Prior to this, the company must have paid all employee entitlements and met tax reporting obligations or be substantially complying with these requirements.
Acceptance or Rejection of the Plan by Creditors:
Creditors have 15 business days to vote on the plan, with votes submitted in written statements. If a creditor disputes the recorded amount of their claim, they must provide specific details of the dispute. The practitioner then has five business days to resolve the dispute.
Plan Implementation or Process Termination:
If the plan is approved by the majority of creditors (by value, exceeding 50% of voters), it becomes binding on all unsecured creditors, and the business continues to trade under the administration of the practitioner. If rejected, control of the company remains with the directors, who may need to consider other insolvency options.
The SBR Process concludes once all obligations under the plan are met and all admissible debts and claims have been addressed, or the process can be terminated by the company, the SBRP, by court order or automatically by the legislation for non-compliance or other reasons.
Some potential outcomes for your business*.
-Debt reduction
-Improved cash flow
-Avoiding insolvency
-Continued trading
-Credit rating
*specific outcomes of the SBRP can vary depending on the circumstances of each case. Not all small businesses will successfully restructure their debts through the SBRP. In some cases, insolvency may be the best option.
A few things to note;
There’s no minimum debt level to be eligible for small business restructuring, however as a company Director, you would want to see a reasonable debt reduction that outweighs the costs and any concerns you have about the potential impact on relationships or your business from going through the SBRP.
ASIC’s 2023 report on the use of SBRPs in practice found that the average cost of the SBRP was $22,055.
A key eligibility criterion of the small business restructuring process is that a company’s debts must be under $1 million when the SBRP begins. The SBRP begins on the date your company signs the paperwork (in the form of a director’s resolution) to appoint the restructuring practitioner. These calculations may not be as straight forward as it seems.
A Business Already on an ATO Payment Plan can use the SBRP
It’s preferable to have the SGC paid in full before going ahead with the SBRP. However, there may be room to accept the appointment beforehand if the arrangement will be paid out in the near future.
Small business restructuring can be a helpful option for eligible small businesses in Australia facing financial difficulties.
However, it's important to note that the SBRP can be a complex process, and not all small businesses will be eligible or successful in restructuring their debts through it.
It's always best to seek professional advice from a qualified restructuring practitioner to determine the best course of action for your specific situation.
At the end of the day, the most important thing is to take action.
We are always available to talk about managing your business debts - call our offices today to start taking steps towards the long-term success of your business.
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