Small Business Restructuring
Navigating financial difficulties can be especially challenging for small businesses. When your resources and liabilities are limited, processes like Voluntary Administration may be out of reach.
Small Business Restructuring has been designed for those times, and it’s the ideal tool for managing the strain on your company.
The team at Business Savers are insolvency experts. As experienced financial advisors, we offer a tailored approach that helps you navigate this process and get your business back on track.
Table of Contents
- What is the Small Business Restructuring Process?
- What is Small Business Debt Restructuring?
- What is a Restructuring Plan?
- What is a Restructuring Practitioner?
- Where Does the Money to Repay Creditors Come From?
- Eligibility for the Small Business Restructuring Process
- When to Consider A Small Business Restructure
- The Small Business Restructuring Process
- Who Controls the Company During Small Business Restructuring?
- Can Personal Guarantees be Enforced During A Small Business Restructure?
- When Does the Small Business Restructuring Process End?
- What are the Outcomes of Small Business Restructuring?
The Small Business Restructuring Process (SBRP) was introduced in 2021 to help small businesses deal with the economic impacts of COVID-19.
Under the SBRP, eligible small businesses can develop a plan to repay creditors (in part or in full) within a 3-year period.
If you’re facing serious financial problems, saving your business can be a struggle. You may be under pressure from creditors to place the business into liquidation, making the situation even more stressful.
While Liquidation may be the best choice for some, it’s a very final solution, so it’s important to explore every avenue before winding up your company.
The SBRP is a simple tool that encourages business owners to access expert support from a Small Business Restructuring Practitioner.
Rather than winding up the business or entering Voluntary Administration, the SBRP allows the Directors to remain in control and continue trading while addressing internal issues.
This often leads to better outcomes for the business and improves your chances of recovering from significant financial issues and reducing stress levels.
To restructure a small business’ debts it relies on “restructuring” to fix the root causes of a business’ financial difficulties.
But clients often ask what restructuring actually involves.
The most significant benefit is that it allows the Directors of the Company to remain in control of the business.
To keep things simple, we can say that restructuring a business is the act of modifying your finances, management and operations to alleviate financial pressures. This may involve:
- Changing the company structure
- Selling assets
- Consolidating debts
- Altering day-to-day operations to improve the way the business functions
Ultimately, the goal is to alter the company in a way that improves your financial situation, reduces waste and helps manage debts.
Restructuring a business is a serious undertaking and should be done with the guidance of a Small Business Restructuring Practitioner.
Achieving the best outcome requires input from insolvency and financial professionals.
These services can be out of reach for small businesses, but the SBRP makes it easy for companies of every size to access expert services for a manageable fee.
Ideally, the plan provides a course of action for restructuring the company’s debts, creating a pool of monies to settle outstanding debts. Funds to settle these debts could be obtained from a variety of sources including third party contributions, proceeds from asset sales, future trading profits or through refinancing.
A Restructuring Plan outlines the changes you intend to make to the business and the payment terms being offered to creditors.
The Restructuring Plan is submitted to creditors, and they have 15 days to vote and approve the plan.
Your Restructuring Plan will proceed if it’s approved by more than 50% of creditors (in value).
If approved, the plan goes ahead, and your Small Business Restructuring Practitioner will administer the proposed changes.
If creditors reject the Restructuring Plan, you may need to consider other options, such as Voluntary Administration or Liquidation.
A Restructuring Practitioner is an independent, registered adviser (a Liquidator) that is experienced in insolvency and business turnaround.
Your Restructuring Practitioner will work with you to develop a Restructuring Plan.
If the plan is accepted, the practitioner will administer the process and any proposed changes to the business.
Restructuring Practitioners are also responsible for managing creditor claims and looking after money that is collected and paid to creditors.
During a small business restructure, your Restructuring Practitioner will collect and distribute money to creditors.
There are no specific requirements about where this money comes from. The money paid to creditors could be sourced from:
- Related parties
- Future profits
- Bank refinancing
- Sale of assets
Money from these sources is collected in an account that’s controlled by the Restructuring Practitioner.
Payments are then made to creditors based on the terms set out in the Restructuring Plan.
Under the SBRP, creditors typically agree to reduce outstanding debts in exchange for partial repayment. Each creditor is paid the same “cents on the dollar” rate, and all receive their payment at the same time.
To be eligible, your company needs to:
- Be insolvent (or likely to become insolvent)
- Have total liabilities of less than $1 million
- Be up to date on paying employee entitlements
- Be up to date on tax lodgements
- The company (or a Director of the company) cannot have previously used the SBRP or Simplified Liquidation within the past 7 years
The eligibility criteria are tested and enforced strictly.
We strongly encourage you to get in touch with Business Savers. Our professional team can assess your eligibility and determine whether the SBRP is the right choice for your financial situation.
The Small Business Restructuring Process is open to companies that are insolvent, or that are likely to become insolvent.
Your company is considered insolvent when it’s unable to pay its debts as and when they are due.
In Australia it’s illegal to continue trading if you know your business is insolvent.
If you notice the following signs of insolvency then it’s important to seek professional advice:
- Being unable to pay debts in full
- Being unable to pay debts on time
- Cash flow problems
- Regular, ongoing losses
- Being unable to pay your taxes
- Receiving demands from creditors
- Suppliers demanding upfront payment before providing goods and services
- Having credit applications rejected
- Creditors taking legal recovery actions against your company
The process has four phases:
1. Pre-appointment. In the first stage, the Directors hold a meeting to determine that the company is insolvent, or likely to become insolvent. At this point you will need to appoint a Restructuring Practitioner (RP). Under the SBRP, the Restructuring Practitioner must quote their fees up front.
2. Proposal. In the proposal period, the RP has 20 business days to help you develop a Restructuring Plan. The plan provides details on timeframes, how creditors will be repaid, and how much money they can expect to receive. Creditors have 15 business days to vote on the plan. A proposal will be accepted if more than 50% of creditors (in value) vote in favour of the plan. The restructuring process ends immediately if the proposal is rejected.
3. Implementation. With your creditors’ approval, the Directors of the company can continue trading while the Restructuring Practitioner administers the plan. Creditors are usually unable to take or continue legal recovery action against your company during the implementation phase.
4. Termination. Your Small Business Restructuring Plan is terminated when all the conditions are met. The business is released from its remaining debts and can continue to trade as normal. Restructuring plans are limited to a maximum timeframe of 3 years.
When you restructure a small business, one of the major benefits is that the Directors retain control of the company.
This allows you to continue trading as normal while your Restructuring Plan is implemented.
Directors are permitted to continue making transactions in the “ordinary course” of business.
You are required to seek the Restructuring Practitioner’s consent if you want to make any transactions that fall outside the ordinary business of your company.
The owners and Directors of small businesses often provide personal guarantees to creditors.
Creditors cannot enforce personal guarantees during the Small Business Restructuring Process.
If the Restructuring Plan is rejected or terminated early, creditors are permitted to enforce personal guarantees against Directors as normal.
The SBRP normally ends when the conditions of your plan have been met. The plan may also be terminated early if:
- The Court orders the termination
- A condition of the plan is not met within 10 business days
- A contravention of the plan is not rectified within 30 business days (e.g. if you fail to meet a condition)
- A Voluntary Administrator is appointed
- A Liquidator or Provisional Liquidator is appointed
The company won’t be released from its admissible debts if the plan is terminated for any of these reasons.
At that point, full control of the company is returned to its Directors and you may choose to:
- Place the company into Creditors’ Voluntary Liquidation
- Appoint a Voluntary Administrator
- Continue to trade and allow creditors to take legal action, which can include placing the business into Court Liquidation
Small Business Restructuring allows your business to satisfy its debts and continue trading as normal.
Creditors typically receive a small percentage of the money they are owed.
However, the restructuring of a small business provides better returns than Liquidation, and it improves the long-term viability of your company.
When the terms of the Restructuring Plan have been completed, the company is released from any remaining debts that were covered by the plan, and the company can continue to trade as normal.
The company is still responsible for repaying debts that fall outside the Restructuring Plan in full.
If the terms of the Restructuring Plan aren’t met, or if the plan is rejected by creditors, the business will usually proceed to Voluntary Administration or Liquidation.
Get Your Business Back on Track with Professional Advice from Business Savers!
Small Business Restructuring is specially designed to assist small businesses that are facing financial difficulties.
While it’s an excellent tool for some companies, restructuring is a serious undertaking. It’s important to seek advice from Business Savers before making any decisions regarding members voluntary liquidation or personal insolvency agreements.
As expert financial advisors, we have decades of experience with insolvency proceedings, and our team can assess whether the SBRP is right for your business.
It’s critical to seek advice as soon as possible if you suspect your business is insolvent. Whether you’re under pressure from creditors or experiencing the signs of financial distress, Business Savers can help with your money worries.
Contact us at any time to arrange a confidential discussion.
