In recent times we have provided information on the eligibility requirements for a Small Business Restructure (SBR) and our approach to SBRs.
In this article, we provide examples of SBRs we have conducted and the outcomes.
Prominent Restaurant
The restaurant had previously been sold leaving the entity with debts of $924,000. A lump sum contribution of $110,000 was proposed and related party debts, in the amount of $364,369 agreed not to claim. The proposal was accepted by creditors and a dividend was paid to creditors in the amount of 18.66 cents in the dollar.
Civil Contractor
The business continued to operate during the SBR. The director proposed a contribution of $94,900, payable in 6 monthly instalments. The contributions are to be sourced from the business’ future profits. The plan was accepted by creditors. The outstanding debts total $237,249 and the estimated dividend is in the order of 40 cents in dollar.
Petrol Station
The company operated several petrol stations in metropolitan Adelaide. The total creditors were $953,360. A contribution of $215,000 was proposed with an initial contribution, ongoing monthly contributions and a final contribution payment over a 14-month period. The business continued to trade throughout the appointment and the proposal was accepted by creditors. The proposed dividend is 21 cents in the dollar.
Hotel
Two companies operated a hotel in regional South Australia. At the time of appointment, the ATO had issued winding up proceedings against both companies in the Federal Court of Australia. Those proceedings were adjourned to allow the SBR to take place. The directors of each company proposed a contribution totalling $200,000 to be distributed amongst creditors of $503,911. The SBR was ultimately rejected because of the company’s extremely poor compliance with historical ATO lodgements.
Media business
The business suffered financial problems due to the failure of a major customer. A contribution of $65,000 was proposed and payable by way of 3 quarterly instalments of $15,000 and a final quarterly instalment of $20,000. The proposed dividend is 22 cents in the dollar and the plan has been accepted by creditors.
Solution
The above examples show that the SBR regime is flexible. A tailored solution may be possible regardless of whether the business continues to trade or has ceased trading and the contribution amount can be up front, payable over a period of time or involve both cash and certain creditors waiving their rights to a dividend.
Our advice is always to lodge, lodge, lodge with the ATO to reduce the risks of Director Penalty Notices and increase the attractiveness of the proposal.
SV Partners is at the forefront of SBRs, restructuring and insolvency, so please don’t hesitate to reach out if you or your clients have any queries about how this process may assist.
Article written by Matthew Ormsby (Director) – Adelaide