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Designed to simplify the debt restructuring process, these reforms better serve eligible small businesses, their creditors and their employees. The new, streamlined process – a formal appointment – allows financially distressed businesses to retain control while they restructure their debts. During the restructuring period, unsecured creditors (and some secured creditors) can’t enforce claims.
These reforms will not only help more financially distressed small business survive, but will positively impact the economy. As turnaround and SBRP practitioners, we’re here to answer your questions and help you or your client develop a plan.
Now that the new framework is in play, here’s a quick recap of the main details.
Eligibility for the small business restructuring process
To access the new small business restructuring process, a company must:
- Be an incorporated company (Pty Ltd) under the Corporations Act
- Have total liabilities of $1 million or less on the day the company enters the process, excluding employee entitlements
- Resolve that they are insolvent or likely to become insolvent (see our insolvency checklist) and decide to appoint a small business restructuring practitioner (SBRP)
- Appoint a small business restructuring practitioner to oversee the restructuring process
Declaring intention to access the restructuring process
After announcing the decision to access restructuring, a business must declare its intention to access the process on the published notices website and notify ASIC within five days of the declaration.
By declaring their intention to access restructuring, businesses are given temporary insolvency relief (until March 31 2021) while they search for a small business restructuring practitioner. This takes into account that it may take some time to select one.
Appointment of a qualified small business restructuring practitioner
A list of registered SBRP practitioners, including us, can be found on the ASIC website.
Once a qualified SBRP had been appointed, their first job is to assess your situation and determine whether your company is eligible to access the process.
Drafting and serving of the small business restructuring plan
If eligible, a business and their practitioner have 20 days from the appointment to prepare a small business restructuring plan in the approved form. This period can be extended by up to 10 days, where the circumstances of the extension are reasonable.
The plan must:
- Identify the property that is being dealt with and how it will be dealt with
- Provide remuneration for the SBRP appointment
- State the date on which it was executed
Once the plan is finalised, you have five days to notify ASIC. Your practitioner must also prepare a restructuring statement to be submitted alongside. This includes a schedule setting out the company’s creditors and the amount they are owed by the company.
The practitioner must serve the plan and relevant papers to affected creditors. All employee entitlements must be paid and all tax reporting obligations up to date before this can happen.
Acceptance or rejection of the plan
Once your creditors have received the plan, they have 15 days to vote on it via a written statement.
- If disputed: A creditor must provide specifics of the dispute. Your practitioner then has five days to resolve it.
- If the majority in value of creditors accept it (over 50% of voters): The plan is approved, binding all unsecured creditors. It will then be administered as you continue to trade as normal. At this point, you’re no longer protected from liability for insolvent trading.
- If rejected: Your company may be placed into voluntary administration or the new simplified liquidation process which is faster and lower-cost.