Restructuring is the process of drastically changing a company’s operations, usually to manage debt or insolvency.
If your company is experiencing financial difficulties, restructuring can help you cut costs, negotiate with creditors and avoid liquidation.
“Restructuring” is an umbrella term that’s used to refer to several formal processes that Australian companies have access to. Each process has its own advantages and disadvantages, so it’s important to choose the right solution for your business.
Financial Restructuring Options for Small Businesses
Small companies in Australia have access to two types of financial restructuring:
1. Small Business Restructuring (SBR)
Small Business Restructuring (SBR) is a simplified process that allows eligible companies to restructure their debt. SBR was introduced during COVID-19 as a flexible alternative to traditional restructuring processes.
SBR is only available to eligible companies that:
- Are insolvent, or likely to become insolvent at a future time
- Have total liabilities of less than $1 million
- Can bring all outstanding tax lodgements and employee entitlements up to date within 4 weeks of an SBR engagement
- Have not used Small Business Restructuring or Simplified Liquidation in the past 7 years
If you’re eligible, the directors can appoint a Restructuring Practitioner (RP). The RP and directors work together to assess the company’s financial situation, negotiate with creditors and develop a Restructuring Plan.
The Restructuring Plan provides details on restructuring measures the company will take, and how its debts will be managed. Creditors can then vote to accept or reject the Restructuring Plan. The creditors are typically required to reduce the total amount of debt as part of the plan.
The major benefit of SBR is that the directors remain in control of the company. The company also does not automatically proceed to liquidation if the restructuring fails.
2. Voluntary Administration
If a company is insolvent (or likely to become insolvent), the directors can enter voluntary administration. This process is more costly and time consuming than SBR, but it’s suitable for companies that aren’t eligible for an SBR.
Similar to SBR, voluntary administration involves working with a Registered Liquidator to assess your financial situation, negotiate with creditors and restructure the business.
The main difference between these processes is that the Administrator takes control of the company. They investigate the company’s financial affairs, giving the company some breathing room from creditors and the opportunity to restructure.
Registered Liquidators may propose a Deed of Company Arrangement (DOCA). A DOCA is a binding agreement between the company and its creditors. In exchange for lowering the total amount of debt, the company undertakes immediate restructuring and repays its debts according to the terms of the agreement. This can involve reducing staff, selling assets, restructuring debt and more.
What Does Financial Restructuring Actually Involve?
Restructuring is a broad term that describes the process of changing your company’s operational or financial structure. This is done to reduce costs, minimise waste, streamline operations and manage debt.
The actual process of restructuring depends on your circumstances. It can involve:
- Negotiating with creditors to reduce or restructure debt
- Selling company assets
- Reducing company waste
- Reducing staffing
- Improving operational processes
These actions are taken with the support of a qualified professional. They’ll work with you to identify areas where costs and waste can be reduced, optimising your business to help you get back on track.
Can Financial Restructuring Help With ATO Tax Debt?
The Australian Taxation Office (ATO) is often a creditor in Voluntary Administration and Small Business Restructuring. This report shows that the ATO was a creditor in 89% of all SBR cases in 2022.
While the ATO can act as a creditor in Small Business Restructuring, the debtor company still needs to be able to bring its tax lodgements and employee entitlements up to date within 4 weeks of an SBR engagement to be eligible.
Keep in mind that the ATO may be willing to negotiate payment arrangements for tax debts. If you can’t reach a private agreement, they may approve a small business Restructuring Plan that provides better returns than the alternative.
Directors can be held personally liable for some types of ATO tax debt. If you are struggling to meet your tax obligations, speak with a professional adviser immediately.
Which Option is Right for Your Business?
We recommend Small Business Restructuring to any company that’s eligible. Compared with other options, SBR is fast, affordable and provides excellent flexibility to negotiate with creditors.
If you aren’t eligible for SBR, you may need to consider Voluntary Administration. Talk to our advisers to find out more. We may be able to help you reach an alternative arrangement that allows you to avoid administration and liquidation.
Compare Your Financial Restructuring Options With Business Savers
Restructuring is a serious undertaking that may lead to liquidation in some cases. To prevent this, it’s important to seek professional advice and consider your options before committing to a course of action.
Business Savers has a team of highly qualified Registered Trusteesand Registered Liquidators with vast experience in personal and corporate insolvency. We provide support for Small Business Restructuring and Voluntary Administration, and can help your company reach the best outcome possible.
Talk to our team if you are concerned about your company’s financial situation. We’ll discuss your options and help you figure out your next steps.
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