Small Business Restructuring Eligibility Checklist
Small business restructuring is a lifeline for many Australian companies that face financial challenges, but not every business is eligible. The Business Savers team knows the pressure you face, and we’re ready to offer clear, simple advice to help you navigate these challenging times.
What is Small Business Restructuring
The Small Business Restructuring Process (SBRP) was launched by the government in 2021 to help eligible companies deal with financial problems while they keep running their operations.
A quick overview the Small Business Restructuring Process
Company directors stay in charge of daily operations throughout the restructuring process. This model lets business owners stabilise their companies while continuing to manage the business. You’ll need to choose a Restructuring Practitioner who will oversee the process and make sure the plan complies with statutory obligations.
The process follows a clear timeline:
- You have 20 business days to develop a restructuring plan
- Creditors then get 15 business days to vote on the proposal
- The plan needs approval from more than 50% of unrelated creditors by value
How Small Business Restructuring differs from liquidation or voluntary administration
SBR is different from other insolvency options in several key ways:
- You keep managing your business, unlike voluntary administration, where an independent administrator takes over
- The process takes about 7-9 weeks, while voluntary administration can drag on for months
- Fewer administrative needs and simpler processes make it more affordable than traditional options
- Creditors can’t pursue claims while you create your restructuring plan
Here at Business Savers, we’ve helped many small businesses succeed through the process. Our expertise will guide you along the way and boost your chances of business recovery.
Are You Eligible For Small Business Restructuring?
Small business restructuring eligibility depends on seven specific criteria. Your company must meet all these requirements to qualify.
1. Your business must be incorporated
A properly registered company under the Corporations Act qualifies for small business restructuring. This option works for proprietary limited (Pty Ltd) companies and corporate trustees of trusts. The process excludes sole traders and partnerships since it’s designed specifically for incorporated entities.
2. Total liabilities must be under $1 million
To qualify for Small Business Restructuring, your company’s total liabilities must be under $1 million, including all secured and unsecured debts, related-party loans, equipment finance and other secured borrowings, and all outstanding tax and superannuation obligations.
3. You must be insolvent or likely to become insolvent
Directors need to confirm the company’s insolvency status or its likelihood before they appoint a Restructuring Practitioner. Common insolvency signs include cash shortages for debt payments, problems raising additional funds, and challenges with tax debts or employee wages.
4. Employee entitlements must be paid
The company needs to clear all due employee entitlements before proposing a restructuring plan. This covers wages, superannuation, and other obligations. Future entitlements don’t need advance payment, but current ones require immediate attention.
5. Tax lodgements must be up to date
Your company should submit all required returns, notices, statements and applications under the Income Tax Assessment Act. The requirement focuses on current lodgements, not necessarily paid tax debts.
6. No prior use of SBR or simplified liquidation in 7 years
The company and its current directors (including those from the past 12 months) must not have used small business restructuring or simplified liquidation in the last seven years.
7. You must appoint a registered Restructuring Practitioner
Small Business Restructuring Practitioners must be Registered Liquidators. They need appropriate experience, knowledge and abilities.
How the Small Business Restructuring Process Works
Your small business restructuring starts after confirming eligibility. The timeline has clear phases that balance your business needs with what creditors want.
Step 1: Pre-appointment
Directors start the process by passing a resolution about insolvency and appointing a registered Small Business Restructuring Practitioner. Several protections kick in right after the appointment:
- Most creditor enforcement actions are restricted during the process. However, creditors with security over substantially all of the company’s assets may retain certain enforcement rights
- Enforcement of personal guarantees is generally restricted during the process, subject to the terms of each guarantee
- Your business keeps running under your control
You need to submit a statement within five business days to confirm your company’s eligibility for restructuring.
Step 2: Proposal
The proposal period covers the next 20 business days, giving you and your restructuring practitioner time to develop a restructuring plan. Your plan should have:
- Payment amounts you propose
- Payment schedule and timeline
- How restructuring returns stack up against liquidation
Creditors then get 15 business days to look at your proposal and vote. They can challenge the amounts in your restructuring statement if something seems wrong. The plan needs support from more than 50% of voting creditors by value. If the proposal is rejected, the process ends immediately.
Step 3: Implementation
An approved plan binds all affected creditors. Your restructuring practitioner handles money collection and distribution based on the agreed schedule. During this time:
- Daily operations stay under your control
- All debts covered by the plan are dealt with according to the terms of the restructuring plan, which may treat creditors differently where appropriate.
- Your practitioner oversees the plan to ensure compliance
Step 4: Termination
When all obligations under the plan are completed, remaining eligible debts included in the plan are discharged, meaning 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.
What If You’re Not Eligible? Other Options to Consider
You might not meet all small business restructuring eligibility requirements, but there are other options if your business is facing financial challenges.
Voluntary administration
A voluntary administration process provides a more formal alternative. This process puts an external administrator temporarily in charge to assess your company’s viability. The administrator might suggest a deed of company arrangement, which can give you similar debt restructuring benefits, though it tends to get pricey.
Safe harbour provisions
Safe harbour provides a defence to insolvent trading liability if directors take steps reasonably likely to lead to a better outcome than immediate administration or liquidation. Directors must develop an action plan that leads to better outcomes than immediate administration or liquidation. You retain control with this option; however, you’ll need detailed documentation and expert guidance.
Improving financial health for future eligibility
You could focus on fixing specific issues that prevent your SBR eligibility. This means reducing debts below the threshold, completing tax lodgements or paying employee entitlements.
Get the Right Advice From Business Savers
Outcomes of the Small Business Restructure Process depend on each business’s circumstances and compliance with legislative requirements.
Business Savers understands the financial pressures small business owners in Australia face. Our team works with you to evaluate your situation, check your eligibility, and direct you through the best restructuring path for your needs.
Financial recovery needs time and expertise, but the right support can help your business emerge stronger and more resilient. Business Savers is here to guide you with confidence and clarity, so contact us for a confidential discussion today.