"Small Business Restructuring Process" | SV Partners

Small Business Restructuring Process

The Small Business Restructuring Process is one of two new formal insolvency appointments introduced by the Federal Government in 2021. Along with the new Simplified Liquidation process, small business restructuring is intended to assist small businesses with resolving their financial distress. Under the small business restructuring process, directors and management remain in control of the company under the supervision of a restructuring practitioner.

The purpose of the Small Business Restructuring Process is to provide directors and the company time to put forward a plan to creditors to pay off their liabilities, in full or in part, within a period not exceeding 3 years.

When is a company eligible for the Small Business Restructuring process?

To be eligible for small business restructuring, a company must:

    • Be insolvent or likely to become insolvent
    • Have total liabilities of less than $1 million
    • Be up to date on tax lodgements
    • Be up to date on employee entitlements
    • The company, or a director of the company, must not have previously used either the small business restructuring process nor the simplified liquidation process within the past 7 years

 

The small business restructuring eligibility test is administered strictly. We encourage you to reach out to the SV Partners team to see if this process is right for your business and to assess your eligibility.

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The Small Business Restructuring Process has four distinct phases.

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How the Small Business Restructuring Process commences

The directors of a company can appoint a restructuring practitioner and commence small business restructuring if they resolve:

    • That the company is insolvent or likely to become insolvent at some time in the future
    • That a restructuring practitioner should be appointed
    • A fixed amount of remuneration of the restructuring practitioner for the proposal period

How does the process work?

Only the directors of a company can propose a Small Business Restructuring Plan, and they must select a restructuring practitioner who is a Registered Liquidator. The restructuring practitioner determines the company’s eligibility and assists the directors to develop a restructuring plan. The plan allows the company to repay their creditors, in part or in full, providing better outcomes for all stakeholders. The restructuring practitioner will also develop the remuneration proposal, which is set at a fixed amount for the proposal period.

After commencement of restructuring, the company has 20 business days to develop and propose the plan to its creditors. During that time, the company has the benefit of a moratorium on most types of security enforcement. Following that, creditors have 15 business days to vote on the plan. The plan is only approved if it gains the support of more than 50% in value of unrelated creditors.

Approving the plan allows the company to continue to trade in the ordinary course of business while the plan is administered by the restructuring practitioner. The plan must operate for no more than three years.

How the Small Business Restructuring Process commences

For a small business restructure to commence, directors of the company must pass a resolution that:

    • the company is insolvent or likely to become insolvent at some future time
    • a Restructuring Practitioner (RP) should be appointed (the Restructuring Practitioner must be a Registered Liquidator)
    • the remuneration of the RP for the proposal period is set at a fixed amount
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How does the process work?

    • Only directors of the company can propose a Small Business Restructuring Plan, and must choose a Restructuring Practitioner (who must also be a Registered Liquidator).
    • The Restructuring Practitioner determines if the company is eligible and will assist to develop the plan. The Restructuring Practitioner will also develop the remuneration proposal, which is set at a fixed amount for the proposal period.
    • The company has 20 business days to develop and propose the plan to creditors during which time the company has the benefit of a moratorium on most types of security enforcement.
    • Creditors have 15 business days to vote on the plan, which requires support from more than 50% in value of unrelated creditors for approval’
    • Approval of the plan allows the company to continue to trade in the ordinary course of business, while the plan is administered by the Restructuring Practitioner. The Plan must operate for no more than three years

What are the expected outcomes of a Small Business Restructuring Process?

Once a restructuring plan has been developed by directors and approved by creditors, the business continues to trade under the control of the directors. The Restructuring Practitioner administers the plan and distributes funds to creditors.

The plan is complete when its terms are satisfied. The company is then released from its admissible debts.

The plan may be terminated early under certain circumstances. For more information, read our Small Business Restructuring flyer here.

If the plan is not approved by creditors, the company does not automatically enter other forms of formal insolvency. Rather, the directors remain in control of the company and creditors may continue enforcement action. In this case, the directors may consider placing the company into Voluntary Administration, or Creditors Voluntary Liquidation, but are not obligated to do so. Likewise, creditors may consider winding the company up by way of an application to court.

 

 

 

How can SV Partners help?

SV Partners work with accountants, legal advisors, financial institutions, other related professionals and their clients to achieve the best possible solution for all stakeholders involved in the insolvency process. Our qualified team have broad experience across a variety of industries, and we bring an extensive understanding of business and the impacts a company facing financial difficulties can have. Our goal is to work towards the good of all stakeholders in the restructuring process, delivering better outcomes and alleviating financial distress.

For more information about the Small Business Restructuring Process, contact us today to speak to an expert who can assess your situation by calling our confidential assist line on 1800 246 801.

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