Small Business Restructuring
How to protect assets from bankruptcy
Business can be tough, particularly in this current economic climate. Financial stress can be debilitating – sleepless nights, worrying about what’s going to happen, and feeling like you’ve failed. But you haven’t.
There are always options. And this could be just the lifeline you need.
The Small Business Restructuring Process (SBRP) is designed to help small businesses restructure their debts and get back on track, without the need for formal insolvency proceedings.
Eligibility
To be eligible for the SBRP, your small business must have liabilities of less than $1 million and must not have engaged in restructuring or insolvency proceedings in the last 7 years.
Appointment of a Restructuring Practitioner
If you meet the eligibility criteria, you can appoint a registered restructuring practitioner to help you develop a restructuring plan. This plan will outline how you propose to pay your debts and get your business back on track.
Debtor in Possession
Under the SBRP, you remain in control of your business while you work through the restructuring process. This means you can continue to trade and make decisions about your business, with the guidance of your restructuring practitioner.
Moratorium on Creditor Action
Once you’ve appointed a restructuring practitioner and developed a restructuring plan, your creditors are prohibited from taking legal action against you for a period of 20 business days. This gives you time to negotiate with your creditors and seek their approval for your restructuring plan.
Creditor Approval
If your creditors approve your restructuring plan, you will have a binding agreement with them to repay your debts over an agreed period of time. If your creditors do not approve the plan, you may still be eligible for temporary relief from creditor action for a further 15 business days.
Implementation
Once your restructuring plan has been approved, you can begin implementing it, with the guidance of your restructuring practitioner. This may involve selling assets, restructuring your business operations, or negotiating payment terms with your creditors.
FAQs
A company is considered insolvent if it cannot pay its debts when they become due. Some common signs of insolvency include accruing losses, cash flow difficulties, overdue taxes and lodgments, legal issues, and difficulty obtaining new credit. If you’re unsure if your company is insolvent, you may want to consult an accountant.
During the debt restructuring process, a company may continue to operate in its normal, day-to-day business. However, certain transactions are considered outside of the ordinary course of business, such as paying a debt that arose before restructuring or paying a dividend. These transactions require the approval of the restructuring practitioner.
Before submitting a restructuring plan to your creditors, your company must meet certain requirements, including paying all employee entitlements that are due and payable, being up-to-date with all tax lodgments, and obtaining approval from your restructuring practitioner.
All unsecured debts that were incurred prior to the company entering restructuring are included in the restructuring plan, with the exception of employee entitlements. Debts incurred after the company enters restructuring are not included in the plan and must be paid outside of the plan.
A company has 20 business days from the start of the restructuring process to submit a plan to its creditors. This period can be extended by up to 10 business days if approved by the restructuring practitioner. Once a plan is submitted, creditors have 15 business days to vote to accept or reject it.
During the restructuring process, a moratorium is placed on unsecured creditor claims and some secured creditor claims, meaning that creditors cannot enforce their claims, recover property used by the company, or enforce security interests in the company’s assets. Certain contracts are also stayed from triggering insolvency-related events.
Creditors are provided with the restructuring proposal statement and the restructuring plan, which they have 15 business days to vote to accept or reject. Creditors may also seek to vary the amount they are owed if it is inaccurately reflected in the restructuring proposal statement.
Once a plan is accepted, payments must be distributed to creditors according to the terms outlined in the plan. All admissible debts and claims rank equally upon repayment, meaning that all creditors are paid the same percentage and at the same time. When a company pays off its obligations under the plan, it is released from all debts or claims that were admissible under the plan. If a company fails to make payments under the plan, it remains liable for the original debt owed prior to the plan commencing, minus any repayments made under the plan.
If the restructuring plan is not supported by more than 50% of creditors by value that vote, the process ends and the company remains liable for its debts. Creditors may begin enforcing their rights and the company is no longer protected from liability for insolvent trading. The company may wish to consider entering into liquidation, which has its own simplified process under recent government reforms.
The Small Business Restructuring Process offers a flexible and cost-effective solution for small businesses facing financial difficulties. With our help, you can take control of your finances and get your business back on track, without the need for formal insolvency proceedings or bankruptcy.
Why use a director’s advocate? We are there for YOU – acting in your best interests every step of the way. We can get you game-ready, and be your support throughout the process. Contact us today for a confidential consultation.
