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Since its introduction in January 2021 the Small Business Restructuring Process (“SBR”) has provided Turnaround Practitioners an alternative to the creditor driven voluntary administration or liquidation process.
Given the recent uptick in recovery action by the Australian Taxation Office (“ATO”), including a significant increase in amount of Director Penalty Notices (“DPNs”) issued, the team at Rapsey Griffiths have been utilising the SBR process.
The major benefit of the SBR is that directors stay in control of the Company whilst they work with the SBR practitioner to develop a plan to compromise their debts to creditors, for example they may offer 20c/$. If the plan is accepted, they continue to trade and the debts are settled as per the restructuring plan.
An overview of the SBR process is as follows:
- The directors of a distressed company appoint a SBR Practitioner. The Practitioner confirms the company is eligible to access the restructuring process.
- A notice of process commencement is provided to creditors, which outlines how information relevant to the process can be accessed.
- Within 20 business days, a restructuring plan is developed by the company directors with the support of the Practitioner. The Practitioner certifies the plan based on their assessment of the company’s financial affairs.
- The plan, accompanying information and the Practitioner’s certification of the plan are made available to creditors.
- Creditors vote on the plan and verify the amount of their debt. Approval requires a majority of unrelated creditors by value who respond by the deadline.
- If a majority of creditors by value vote for the restructuring plan: the plan commences, and the Practitioner is appointed to oversee the plan.
- If a majority of creditors by value vote against the restructuring plan: the process ends and the directors may choose to enter another insolvency process.
The major benefits of the SBR process are;
- The directors stay in control of the process and are assisted by the SBR Practitioner.
- The Company continues to trade under the directors’ control during the process.
- Unlike a liquidation or voluntary administration (“VA”), the SBR Practitioner works for the Company not the creditors.
- The SBR Practitioner charged a fixed fee restructuring period which is significantly lower than a VA.
- Entering into a restructuring plan can allow directors to avoid personal liability when issued a Director Penalty Notice.
To be eligible for SBR a company must;
- Incorporated businesses.
- Liabilities of less than $1 million.
- Must have all due tax lodgements submitted.
- Must pay any employee entitlements which are due and payable before a plan can be put to creditors.
- Current and former directors (acting in the past 12 months) also cannot have been a director of a company that has done a small business restructuring or used simplified liquidation in the past 7 years.
If your clients are experiencing debt issues contact the Rapsey Griffiths team for a confidential chat.