Small Business Restructure


Why commence a small business restructure?

Where a company is facing financial difficulties, and is unable to manage the quantum of its debts, the small business restructure allows for a company and its creditors to come to a binding agreement to deal with the debts of the company.

The restructuring of the debts is to allow for the company to continue into the future, instead of the alternative of being placed into liquidation.

The agreement involves the injection of money into a fund to be distributed amongst the creditors of a company, and the funds provided are often far less than the total quantum of the debts.

The agreement is binding on the creditors and they are required to accept the dividend from the fund in full and final satisfaction of their claims.

The concept is similar to a voluntary administration and deed of company arrangement, however the control of the company remains with the directors, and this greatly minimises the costs of the implementation of the small business restructure (SBR).

The commencement of a SBR may also assist in minimising the exposure of a director to a director penalty notice.

Not all companies will be eligible to utilise the SBR regime as there are a number of eligibility criteria which have to be satisfied.

Is my company eligible to utilise the small business restructure?

To be eligible to utilise the SBR, a number of requirements must be met at the time of commencing the process.

  • Total debts to creditors (admissible debts) must not exceed $1million.
  • The company cannot have undergone a restructuring within the previous 7 years.
  • The directors of the company, (inclusive of previous directors who have resigned in the previous 12 months) cannot have been a director of a company which has undergone a restructuring, a or a simplified liquidation in the previous seven years. (This provision is subject to a number of exclusions).

In addition to the above, on or prior to the restructuring plan being forwarded to creditors for their consideration, the company must have:

  • Paid all employee entitlements which are due and payable (inclusive of superannuation).
  • All returns, lodgements and notices with the Australian Taxation Office (ATO) must be up to date. Please note that the requirement is to have lodged the returns and provided all notices to the ATO. It is not a requirement that the debts to the ATO have been paid.

How is the company placed into a small business restructure?

The appointment process is initiated by the company’s board of directors.

The directors will be required to resolve that the company is insolvent or likely to become insolvent at some future time, and that a restructuring practitioner for the company should be appointed.

How does a small business restructure Work?

Upon the appointment of the restructuring practitioner, the control of the company, inclusive of the day to day trading remains under the control of the directors.

The directors are required to develop and propose a restructuring plan which, amongst other things, identifies the company property and how it is to be dealt with. This effectively means identifying the assets of the company (funds) that will be available to meet the claims of the creditors.

The restructuring plan, and a restructuring proposal statement are forwarded to creditors along with a declaration by the restructuring practitioner, and other documents.

The declaration must comment on the company meeting the eligibility criteria, the completeness of the information set out in the restructuring proposal statement, and a statement about the likelihood of the company being able to discharge the obligations of the restructuring plan.

Creditors will then be able to complete and return a form to the restructuring practitioner advising their views of accepting the restructuring plan or rejecting the restructuring plan.

The plan will be accepted if the majority in value of the affected creditor claims have returned the statements to the restructuring practitioner advising of their acceptance of the restructuring plan.

Can creditors continue with their actions against the company?

Following the commencement of a SBR, proceedings cannot be continued with, or commenced against the company or its property without the consent of the restructuring practitioner or without the courts permission.

What happens to any personal guarantees during a SBR?

Whilst a company is in the initial phases of a small business restructure, creditors are not permitted to enforce a personal guarantee against a director, a spouse or relative of a director without leave of the court.

The moratorium comes to an end when the restructuring plan is entered into, or when the SBR comes to an end.

How are creditor claims dealt with in a SBR?

All creditor claims are to rank equally for dividend purposes.

Related creditors are excluded as creditors from an SBR.

If you would like further information, or believe a SBR may be relevant to your circumstances, please contact us for an obligation free consultation.

Having Insolvency Concerns?

Please contact KHR Insolvency for an obligation free consultation to discuss your circumstances.