In order to support small firms experiencing financial difficulties, Small Business Restructuring, or SBR, was created in 2021. Under SBR, a small company can offer its creditors a plan to restructure its debts while the directors continue to run the company. Given that over 90% of debt reduction agreements are authorized by creditors, SBR has emerged as the “go-to” option for many small businesses experiencing financial difficulties!

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What is restructuring for small businesses?

According to corporate law, a firm can restructure its debts through a straightforward process called Small Business Restructuring (SBR), which involves proposing and agreeing on a plan with its creditors. Small enterprises can reorganize with the directors still in charge thanks to it.

How does the process of small business restructuring unfold?

An insolvent small firm has 20 business days to develop a restructuring plan under the supervision of a Small firm Restructuring Practitioner (SBRP). Within 15 business days, creditors vote on whether to accept it. The corporation pays the agreed-upon amount under the plan, either in one lump sum or over a number of installments, if creditors accept it. When finished, the business is released from the remaining debt. It can now trade profitably going forward since it has “cleared the debt.” As an alternative to an ATO Payment Arrangement, it is highly favored. Plans agreed upon for creditors have recently varied from 9 cents to 35 cents per dollar. Thus, SBRs have helped companies reduce their debt by up to 91%.

Is the restructuring of small businesses popular?

It is indeed quite popular presently. There was a notable surge in the quantity of SBRs throughout the initial half of 2024. Now, each month, the number of new SBRs exceeds the number of new Voluntary Administrations. This happened at the same time that the ATO started collecting debt again after pausing because to COVID-19. It has primarily been used to reach a mutually agreed-upon plan to pay down debt with creditors, including the ATO.

What results can be anticipated from a small business restructuring?

Initially, a restructuring practitioner collaborates with the company and its directors to develop a restructuring plan. The restructuring practitioner subsequently presents the Plan to the creditors, who then have the opportunity to vote on whether or not to approve it. Under the directors’ direction, the company keeps operating in the interim. The restructuring specialist is in charge of managing the Plan and allocating money to creditors. When all of the terms of the plan are met, it is finished. After then, the corporation is freed from the previous debts that the Plan had paid for.

How can I determine if my business need an SBR and is insolvent?

When a business cannot afford to pay all of its debts when they fall due, it is said to be insolvent. There are numerous indicators that a business is bankrupt. A sizable amount of overdue taxes is typically the most obvious warning indication. Additional indicators may include persistent losses, cash flow issues, unpaid taxes, and trouble obtaining fresh credit.

How much does the process of small business restructuring cost?

In general, fees can be anywhere from $15,000 to $30,000, which includes a percentage fee for the plan administration phase and a fixed price for the restructuring phase. These expenses are typically included in the agreed-upon debt reduction. Fees will vary based on the specific needs of your business. It is necessary to weigh the costs against the potential savings that a good plan may bring about. For instance, a business may agree on a plan with creditors worth $500,000, say, at thirty cents on the dollar. Therefore, the corporation may receive a “saving” of $350,000 (70% of $500,000) in debt reduction and incur $30,000 in costs in order to get there. Small business restructuring practitioners who are registered with the government are obligated to provide an estimate up front for the fixed cost of the restructuring phase. In the Plan Phase, the restructuring practitioner will also receive a portion of the money that is restored to creditors.

Is Small Business Restructuring an option for my small business?

Incorporated firms (usually Pty Limited corporations) with creditors under $1 million can use the Small Business Restructuring process. In order for a company to qualify for Small Business Restructuring, it needs to be able to state:

The business is bankrupt or on the verge of going bankrupt.

On the day it starts the process, the company’s total liabilities, or creditors, do not exceed $1 million (exclusive of employee entitlements).

During the previous seven years, none of its directors served as a director of any other business that underwent a simplified liquidation or small business restructuring.

All tax filings by the business are current; and

All employee benefits, including superannuation, may be paid by the employer (except from paid time off and other benefits that are not yet due).