If your business faces financial difficulty, you may wonder about your options. In response to recent economic challenges, the Australian government has developed a new framework to help small businesses restructure their debts and rebuild their business for long-term success. Let’s explore the small business restructuring process and how it works, show what you need to do to qualify, and provide some tips to ensure it goes as smoothly as possible.
What is small business restructuring?
The Australian government’s introduced the small business restructuring plan on 1 January 2021. They designed the framework to help businesses with less than $1 million of liabilities restructure their debts and rebuild for growth.
With SBR, a business designs a comprehensive plan with the guidance of a practitioner. They then propose that plan to the business’s creditors. The plan contains a restructuring proposal and a plan to repay creditors.
The small business restructuring framework is easily accessible, cost-effective, and simple. This encourages businesses that need help to reach out and get their company back on track.
The SBR process allows businesses to keep control of their business throughout. This hugely benefits business directors, as they can continue to trade while the restructuring occurs.
Benefits of small business restructuring
Small business restructuring holds several benefits over other forms of insolvency law.
- With SBR, business directors retain control of company operations at all times.
- SBR is more cost-effective than other insolvency procedures.
- The process allows a business to rebuild for long-term success.
The small business restructuring process
Let’s look in detail at the different stages of the SBR process and what you need to do to get started.
Does my business qualify for small business restructuring?
To be eligible for SBR, your company must meet several simple criteria.
- The business must have liabilities of less than $1 million.
- The business must be insolvent or about to be insolvent.
- Any necessary tax returns must have been logged
- All employee entitlements must have been paid.
- The company must not have gone through a restructuring or simplified liquidation process in seven years.
- The company director must have been associated with something other than another SBR for a different company within seven years.
I’m eligible for SBR. What next?
If your business is eligible for SBR and is interested in proceeding with the process, you must appoint an externally licensed practitioner. The practitioner will ensure you comply with the agreed terms and guide your business through the process.
The practitioner will assess whether your company can proceed with the plan. They will also offer advice and assist the business in drawing up a restructuring plan to be proposed to creditors.
What do I need to include in my plan?
There are no limitations as to what your plan can include. Your restructuring practitioner will help you develop a short-term proposition that sets your business up for long-term success.
For example, your proposal could outline your plan to:
- Make the business more cost-efficient.
- Make significant organizational changes.
- Change the strategic focus of the business.
- Improve critical processes.
- Reallocate finances
- The party responsible for paying for things, for example, end-of-lease cleaning.
Businesses have 20 days to create and propose their plan. The company is allowed to continue trading during this period.
Who judges my plan?
Your creditors will judge your plan before deciding whether they want to accept your proposal. They will have up to 15 days to make this decision.
If most creditors accept the proposal, the SBR strategy will go ahead.
If most creditors refuse the proposal, the business can go another insolvency route, such as simplified liquidation or voluntary administration.
What happens next?
If your plan is accepted, your restructuring practitioner will help you integrate the proposed rebuild in alignment with the agreed terms.
Is there anything else I should know?
Thinking of starting the SBR process? Keep some of these tips in mind to ensure you rebuild for success.
- Any creditor debt you accumulate after the restructuring plan has been drawn up will need to be paid by the terms of that agreement, as those debts aren’t a part of the original plan.
- With your practitioner’s approval, you can only sell your business’s assets during the restructuring plan.
- It will be terminated if you fail to complete the plan in the allotted time. This will leave any creditor debts to be payable immediately.
- When creating a plan, simplicity is often best. Avoid complex proposals that are likely to overcomplicate things.
- Make the most of your restructuring practitioner. They’re there to help you as much as they can.
- The SBR process can be tricky. For advice on restructuring your business, always contact an expert.
By working with a practitioner, businesses can develop a comprehensive plan, propose it to their creditors, and continue trading. At the same time, the restructuring occurs, giving them the best chance for a successful recovery.