What is Small Business Restructuring?
Is Small Business Restructuring the right option for your Australian business?
Small Business Restructuring (SBR) is a formal process that allows financially distressed but viable small businesses to restructure their debts while remaining in control of their operations. This process, introduced as part of Australia’s insolvency reforms in 2021, is governed by the Corporations Act 2001 and overseen by the Australian Securities and Investments Commission (ASIC). A registered restructuring practitioner (RP) manages the process, ensuring compliance with ASIC regulations.
When should you consider Small Business Restructuring?
Small Business Restructuring may be suitable for companies that are experiencing financial distress but still have a viable business model. It may be an option if:
- The company is insolvent or likely to become insolvent.
- The directors believe the business can continue if debts are restructured.
- The company meets the eligibility criteria, including having total liabilities of less than $1 million.
Engaging with a Restructuring Practitioner early can help maximise the chances of business survival and prevent directors from breaching insolvent trading laws.
Eligibility criteria for Small Business Restructuring
To qualify for Small Business Restructuring, a company must:
- Be insolvent or likely to become insolvent.
- Have total liabilities of less than $1 million.
- Be up to date with tax lodgements.
- Have no prior use of SBR or simplified liquidation in the past seven years.
- Have all employee entitlements (including superannuation) paid up-to-date before entering the process.
A Restructuring Practitioner assesses the company’s eligibility before proceeding.
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Possible benefits of Small Business Restructuring
- Director Control: Unlike voluntary administration, directors remain in control of the company while working with a restructuring practitioner.
- Reduced Costs: SBR is a cost-effective alternative to voluntary administration.
- Debt Restructuring: Allows businesses to negotiate a repayment plan with creditors.
- Quick Process: The restructuring plan must be developed within 20 business days, with creditors given 15 business days to vote.
- Business Continuity: Enables businesses to continue trading while restructuring debts.
Posible disadvantages of Small Business Restructuring
- Creditor Approval Required: At least 50% of creditors (by value) must approve the restructuring plan.
- Public Process: The appointment of a restructuring practitioner is publicly recorded.
- Limited Eligibility: Companies with liabilities exceeding $1 million cannot use this process.
- Strict Compliance Requirements: Companies must be up to date with tax and employee entitlements before entering SBR.
How long does the process take?
Small Business Restructuring is designed to be a fast-tracked process:
Phase 1: Initial Appointment
(Up to 20 Business Days)
- Appointment of a restructuring practitioner.
- Development of a restructuring plan.
- Communication with creditors.
Phase 2: Creditor Decision
(15 Business Days)
- Creditors review the restructuring plan.
- Voting process takes place (majority approval required).
Phase 3: Implementation
(Ongoing)
- If approved, the company follows the agreed repayment plan.
- The restructuring practitioner oversees implementation.
If creditors reject the plan, the company may need to consider alternative insolvency processes such as voluntary administration or liquidation.
What are the costs involved?
- Restructuring Practitioner Fees: Typically charged as a fixed fee, depending on complexity. You should ask for information to help decide on your options.
- Legal and Accounting Fees: Additional costs may apply for financial reporting and compliance.
- Operational Costs: Businesses must continue trading and meeting ongoing expenses.
Role of the Restructuring Practitioner
- A registered Restructuring Practitioner (RP) plays a key role in Small Business Restructuring by:
- Assessing company eligibility for SBR.
- Helping directors develop a restructuring plan.
- Acting as an intermediary between the company and creditors.
- Overseeing implementation if the plan is approved.
- Reporting to ASIC and creditors as required.
Summary
Small Business Restructuring offers an opportunity for financially distressed but viable businesses to restructure debts while maintaining control of their operations. By working with an ASIC-registered restructuring practitioner, directors can navigate the process effectively and improve their business’s chance of recovery. Seeking early professional advice is essential to determine whether SBR is the right path.
This information is for guidance only, is indicative, and should not be taken as legal or financial advice.
If you have any queries or wish to discuss your own circumstances, find your trusted insolvency professionals on the Insolvency Australia’s platform
For expert guidance on choosing the right restructuring practitioner for your business, visit Insolvency Australia’s guide to selecting a practitioner.
