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Drawing on the key features of the US Bankruptcy code, debtor in possession is a new insolvency regime for small businesses, born out of the economic fallout of COVID-19. Under these changes, small business owners remain in control while restructuring debt.
As experienced small business turnaround and restructuring practitioners, our role in this process is to help small businesses prepare a plan, certify it to creditors and oversee disbursements. As these changes to the insolvency framework are new, we’re also here to offer advice and keep you informed.
What does a small business restructuring plan involve?
If a small business is eligible to take advantage of the debtor in possession measures, they have 20 business days to develop a restructuring plan. Importantly, they must ensure their employee entitlements are paid in full before the process begins.
A further 15 days are then allowed for creditors to vote. For plan to proceed, 50 per cent of creditors must vote in favour. If the plan is not approved, the business can enter voluntary administration or liquidation with a simplified, faster and lower-cost process.
What are the benefits of a small business restructuring plan?
- Cut the length of the insolvency process
- Reduce the costs involved
- Help small businesses out of crisis
Please note: Small business restructuring plans can be used by an incorporated business with liabilities of less than $1 million and is effective from 1 January 2021.