Businesses may fall behind on debts and be struggling to stay afloat – a government program is available to help businesses with Small Business Restructuring. We look at how the program works, eligibility requirements and what to expect from the program.
What is small business restructuring?
A Small Business Restructure is an ATO-led initiative that allows businesses to reduce debts and create a roadmap back to success. This may be an alternative solution for businesses who are facing insolvency or are likely to face this scenario in the future.
How do I know if my company is insolvent, or close to insolvency?
Insolvency is when your company is unable to pay its debts. Your company might be in financial difficulty if it has ongoing losses, poor cashflow, unpaid creditors outside usual trading terms and problems obtaining finance.
There are several signs to look for if you think your company may be close to insolvency including: overdue taxes and superannuation liabilities, rent and other essential services unpaid or delayed, incomplete financial records and lack of cash-flow forecasts. Another sign is if you have been issued with a Director Penalty Notice (DPN) – it doesn’t automatically mean insolvency is likely but it is a warning sign to potential issues. You can find out more information via our insolvency factsheet here.
How does the Small Business Restructuring program work?
The Small Business Restructure Process (SBRP) is a government- legislated option for small businesses in Australia that are struggling with cash flow.
It allows business owners to appoint a Small Business Restructuring Practitioner to develop a restructuring plan approved by the ATO and other creditors.
The plan involves debt reduction and other other measures so you can get your business back on track and keep trading.
If you are eligible to take part in the program, it will put a stop on any creditor actions while the restructure is being finalised. You can reduce debt and implement manageable payment schedules, while remaining trading.
What should I expect during the program?
During the program you’ll create a debt restructuring plan which sets out how a company’s creditors would be repaid if the plan were made. For example, the plan could specify how creditors will be repaid as a proportion of the debt owing to them, or what ‘cents in the dollar’ they will receive.
The plan is accompanied by a restructuring proposal statement, which includes a schedule setting out the company’s creditors, and the amount they are owed by the company.
Once you enter the restructuring process the company stays in control of the process, and may undertake transactions that are in the ordinary course of business.
The company is assisted in this process by its small business restructuring practitioner.
How long does the restructuring process take?
The company must put a restructuring plan to its creditors within 20 business days of entering the process. The company’s small business restructuring practitioner can extend this period by up to 10 business days where an extension is reasonable in the circumstances. Once a plan is put to creditors, they have 15 business days to vote to accept or reject the plan.
What is the cost of a small business restructuring?
The cost of the restructuring will vary depending on the company and the complexity of the restructure. However, the small business restructuring practitioner must offer a flat fee to assist you to prepare the restructuring plan and to put the plan to creditors. You and the small business restructuring practitioner must agree on this cost before the restructuring commences.
How do you take part?
You must first work out if your business is eligible to take part. To be eligible to access this new process your company must:
- be incorporated under the Corporations Act;
- have total liabilities which do not exceed $1 million on the day the company enters the process. This excludes employee entitlements;
- resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed
- appoint a small business restructuring practitioner to oversee the restructuring process, including working with you to develop your debt restructuring plan and restructuring proposal statement.
Are there any downsides to using this service?
This program is designed to support businesses to get back on track. If you utilise this initiative, it will be publicly listed on the ASIC website.
For more information and to find out if you are eligible here.
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