The small business sector is one of the engine rooms of the Australian economy, driving economic growth and employment for millions of people. But running a small business can also be highly challenging in an environment where bigger picture events such as Covid-19 and rising inflation can present a threat to the sector’s growth and survival.
In response, the Australian government introduced the Small Business Restructuring (SBR) process in 2021, aimed at providing a simplified and efficient framework for debt restructuring. SBR allows a small business to create and propose a plan to its creditors to restructure its debts while the directors remain in control of the business and still trading.
In this article we’ll look in more detail at the SBR debt restructuring process and how it empowers entrepreneurs to regain control of their financial future.
Understanding the Small Business Restructuring process
The SBR reform introduced as part of the Australian government’s insolvency reforms allows eligible small businesses with debts up to $1 million to reorganise their financial affairs and operations while continuing to trade. The primary objective of the SBR process is to provide struggling small businesses with a chance to turn around their operations and avoid insolvency, thereby preserving jobs and fostering economic stability.
To qualify for the SBR process, small businesses must meet specific eligibility criteria, including:
- being incorporated in Australia;
- having liabilities of $1 million or less (exclusive of employee entitlements)
- being insolvent or likely to become insolvent;
- with none of its directors having been a director of another company that has gone through another Small Business Restructuring or a Simplified Liquidation process within the last seven years;
- and, the company is up to date with its tax lodgements and all employee entitlements..
Upon meeting the eligibility requirements, the small business appoints a registered restructuring practitioner to assist in formulating and implementing the restructuring plan. The ASIC website maintains a list of Registered Liquidators, including those who can only take the work of a small business restructuring practitioner.
Developing a restructuring plan: The appointed restructuring practitioner works closely with the small business to develop a restructuring plan tailored to its unique circumstances. The design of the plan should propose strategies and actions to address the company’s financial challenges and give insight into how it can secure future sustainability.
The plan may detail the need for the directors to negotiate with creditors for extended payment terms, debt forgiveness, or partial debt repayment. Under the SBR process, the restructuring plan must be presented to the creditors within 20 business days of the appointment of the restructuring practitioner.
Voting and approval by creditors: Once the plan is presented, the creditors hold a meeting to vote on approving its terms within 15 days. To be accepted, the plan must receive support from a majority in both value and number of the creditors. If the plan is approved, it binds all unsecured creditors, and the small business can proceed with its implementation.
If creditors accept the plan, the company pays what is agreed in the document then is free of the balance of the debt. SBR has quickly become a popular alternative to negotiating a payment arrangement with the Australian Tax Office.
If creditors don’t accept the plan, the company can proceed to choose its preferred course of action, such as another company liquidation process, voluntary administration or other actions.
Effects and benefits of the SBR process: The SBR process provides several advantages for small businesses facing financial distress. Firstly, it offers a cost-effective alternative to traditional insolvency processes, reducing the financial burden on the business. Secondly, it allows business owners to retain control and continue operating, preserving jobs and maintaining relationships with suppliers and customers. Furthermore, SBR facilitates open communication between the small business and its creditors, fostering collaborative solutions and better outcomes for all parties involved.
Seek expert legal advice for more detail on the SBR process
The SBR process in Australia provides a vital lifeline for struggling small businesses, offering a simplified and efficient debt restructuring framework. In uncertain times where the economy is still shakily emerging from the shock of the Covid-19 pandemic, SBR provides a cost-effective and time-saving way for a business owner to try and regain control of their finances and get the enterprise back on its feet.
If you need some expert guidance on utilising the SBR process, contact our friendly team at Felicio Law Firm. We have the skills and experience to offer you the right advice on restructuring debt for your small business.