Small Business Restructuring (SBR)
On 1 January 2021, the Federal Government enacted new Restructuring laws for eligible small businesses.
The Australian Government has compiled a useful fact sheet pertaining to Simplified Debt Restructuring which can be found here.
For a small business to be eligible, it must:
i. be incorporated under the Corporations Act;
ii. have total liabilities which do not exceed $1 million on the day the company enters the process. This excludes employee entitlements;
iii. be in substantial compliance with the following requirements*:
a) employee entitlements which are due and payable have been paid,
b) tax lodgements are up to date meaning all relevant tax returns and activity statements are lodged with the ATO.
* Note the above requirements must be complied with before a restructuring plan is issued to creditors.
Initiating the Appointment
The company must:
- resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed; and
- appoint a small business restructuring practitioner to oversee the restructuring process, including working with the company to develop its debt restructuring plan and restructuring proposal statement.
The Restructuring has two phases:
- the Restructuring phase; and
- the Restructuring Plan phase
The restructuring phase begins when a small business restructuring practitioner is appointed by the company (the Restructuring Practitioner or RP). The RP will advertise their appointment and notify creditors. The company will then have to disclose (“restructuring practitioner appointed”).
The RP will assist the company to:
- prepare its restructuring plan and restructuring proposal statement; and
- circulate the restructuring plan and restructuring proposal statement to creditors.
Creditors* will have 15 business days to consider the restructuring plan and proposal and vote on whether they accept it or not.
*Note - Related Party creditors are excluded from voting.
Should creditors accept the restructuring plan, the RP manages the requirements set out in the plan, including realising any recoveries as set out in the plan and paying distributions to creditors in accordance with the plan.
A moratorium begins when the company enters the restructuring phase. This means that unsecured creditors and some secured creditors are prohibited from taking action against the company, personal guarantees cannot be enforced and there is a restriction on the operation of ipso facto clauses similar to that applying in voluntary administration.
In essence, this provides the company with some ‘breathing space’ to develop a plan that will provide for the continuation of the business and the best return for creditors given its financial circumstances.
The importance of the role of the company’s directors and the RP
Whilst the RP oversees the debt restructuring, it is important to note that the company’s directors remain in control of the business.
If the company continues to trade during the Restructuring phase or the Restructuring Plan the company will be liable for any debts incurred during this period (not the RP).
Contact your local Rodgers Reidy office for further information.
David began his professional career in the manufacturing and wholesale distribution industries in various Accounting & IT positions. Since joining Rodgers Reidy in 2006, he has gained extensive expertise in formal insolvency appointments, restructuring and corporate recovery assignments and various forensic and investigative accounting roles across a wide range of industries.