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Small Business Restructuring Process

The Small Business Restructuring Process is one of two new formal insolvency appointments introduced by the Federal Government in 2021. In this new process, directors and management remain in control of the company (under 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?

In order for a company to be eligible, the following criteria must be met:

    • The company must be insolvent or likely to become insolvent
    • The company must have liabilities less than $1 million
    • 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
    • Tax lodgements must be up to date
    • Employee entitlements must be up to date

 

Eligibility is a strict test and we encourage you to reach out to our team to see if this process is right for you and your business.

The Small Business Restructuring Process has four distinct phases.

Download our Small Business Restructuring fact sheet here

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

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

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

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 the plan is 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 and 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 appointments. Rather, the directors remain in control of the company and creditors may continue enforcement action.

The directors are able to consider placing the company into Voluntary Administration, or Creditors Voluntary Liquidation, but are not obligated to. 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 throughout an insolvency process. Our highly qualified team have worked throughout various industries and have an extensive knowledge of business and the impact on stakeholders when a company faces financial distress.

For more information about the Small Business Restructuring Process, speak confidentially to an expert that can assess your situation by calling 1800 246 801.

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