SMALL BUSINESS RESTRUCTURING

Small Business Restructuring process (SBR) is a formal debt restructuring process introduced in January 2021. It allows eligible small businesses to restructure their debts with the help of a Small Business Restructuring Practitioner (SBRP or RP) while the business owners remain in control of their business during this process.

To qualify for SBR, a company must:

• be an incorporated business (i.e. Pty Ltd entity);
• be insolvent or likely to become insolvent at some future time;
• have total liabilities (excluding employee entitlements) not exceeding $1 million;
• together with its related entities, not have adopted SBR or simplified liquidation in the last seven years.

An SBRP assists the business in preparing a restructuring plan, liaises with creditors, collects and distributes to affected creditors under the plan terms, and ensures compliance with legal requirements. Unlike a liquidation or voluntary administration, the SBRP does not take control of the business which leaves the control of the business in the director’s hands and can reduce the costs of the process significantly.

Board of directors must pass a resolution on the (likely) insolvency of the company and appoint a Small Business Restructuring Practitioner (SBRP or RP), the process involves two phases i) Restructuring Phase and ii) Plan Phase.
Restructuring Phase
During the Restructuring Phase, within the first five business days, the directors must submit a statement declaring the company’s eligibility for SBR (i.e. that it meets the criteria above). In the meantime, the company works with the SBRP to draft a proposal to creditors within 20 business days from appointment (Proposal Period). The proposal allows for a restructure of debts by way of a proposal for a “cents in the dollar return”. 
The company must (1) have all its tax lodgements up to date and (2) have all employee entitlements due and payable (including Superannuation Guarantee Charge/SGC) paid up by the end of the Proposal Period / the time the proposal is sent to creditors
Creditors then will have 15 business days to review and vote on the proposal (Decision Period). Once accepted, the plan binds all affected creditors.
Plan Phase
If the proposal is accepted by the majority in value of the voting creditors, the plan is deemed to have been accepted by all affected creditors, hence, binding all affected creditors. The plan is made on the next business day after the Decision Period ends. 
During the Plan Phase, the RP will collect and distribute funds to the affected creditors pursuant to the plan terms. Once the final distribution is made, the directors advise the RP of the effectuation of the plan and the company is relieved of all the compromised claims.

In SBR, the directors remain in control of the business during the restructuring process, whereas in Voluntary Administration or Liquidation, an external administrator takes control.

• Directors remain in control of the business.
• Lower costs compared to Voluntary Administrations or Liquidations where the business continues to trade.
• Potential to save the business and preserve jobs.

Most unsecured debts can be included in an SBR, such as trade creditors and tax debts (employee entitlements are excluded). 
Secured debts (e.g. car finance or business loans) are only included to the extent of the difference between the debt amount and the value of the collateral (i.e. the shortfall calculated as the debt minus the secured asset value).

Yes, company tax debts can be included in the SBR, provided the company meets all eligibility requirements including its tax lodgements and employee entitlements payable (incl. SGC) both being up to date.

The Restructuring Phase usually takes 35 business days. The RP can extend the Proposal Period (i.e. the first 20 business days) by up to 10 business days on the company’s written request if the RP is satisfied that the extension is in the interest of the affected creditors.
The Plan Phase length depends on the plan accepted, which can range from a couple of days to up to three years.

The Restructuring Phase usually takes 35 business days. The RP can extend the Proposal Period (i.e. the first 20 business days) by up to 10 business days on the company’s written request if the RP is satisfied that the extension is in the interest of the affected creditors.
The Plan Phase length depends on the plan accepted, which can range from a couple of days to up to three years.