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A Guide to Small Business Restructure in Australia

When a small business in Australia is struggling financially, there are a range of measures business owners and directors may take to assist the business to recover. In some cases, they may change the way the business operates or its inherent structure. They may also take advantage of the government’s Small Business Restructuring (SBR) scheme, which provides small businesses the opportunity to reorganise debts, whilst remaining in control and continuing to operate.

In this article, we’ll focus on how a SBR can benefit your struggling small business, and look at the steps involved for small businesses who wish to undergo a small business restructure. We’ll also look briefly at how the SBR came about, and how it differs from a more general business restructure.

What is Small Business Restructuring (SBR)?

Previously, if a small business was insolvent or facing insolvency, options were limited to Voluntary Administration or liquidation, which often meant there was no viable future for the business. To provide some protection for businesses in financial hard times, and support businesses to continue to operate, the government introduced the SBR initiative, whereby small businesses could reorganise debts with creditors whilst continuing to operate. The scheme offers some protection for businesses for the duration of the process, and an opportunity for future survival.

Small Business Restructuring was introduced in 2021 as part of Australia’s insolvency framework. The scheme began as a way of handling the volume of business insolvencies that arose after COVID-19, however it has continued to have uptake in subsequent years. As more businesses have undergone the SBR and the positive results have become more well known, there is likely to continue to be uptake of the scheme.

How does the SBR differ from general business restructuring?

General business restructuring involves reorganising the governance structure of a business, such as changing from a sole trader to a company, a sole trader to a partnership, or a partnership to a company. These sorts of business restructures are often made for operational reasons, to grow the business, or to downsize due to economic factors.

The SBR specifically addresses financial restructuring. It doesn’t touch on other types of business restructuring. So whilst a business in financial difficulty may choose to make some of the general structural changes mentioned above, these changes fall outside the scope of the SBR.


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What are the benefits of Small Business Restructuring?

The benefits for small businesses who enter into the SBR process include:

  1. An honest assessment of your current predicament, whether or not your business is able to be rescued, and whether it has a viable future.
  2. Debt Reduction, via compromises with creditors, tax relief, and other restructure measures.
  3. A map for future business success, rather than focusing on past challenges.
  4. Owners Remain in Control: Business owners retain control of their business during the restructuring timeline. This means it can be business as usual when it comes to daily operations of the business, whilst the SBR process handles the repayment of debts.
  5. Creditor Protection: Whilst the SBR is underway, unsecured creditors can’t initiate recovery actions against the company. This gives businesses breathing space.
  6. Assistance from a Restructuring Practitioner (RP): As part of the SBR process, an RP is appointed to work with the business throughout the process. The RP must be a Registered Liquidator with ASIC, meaning they have the expertise to carry your business through the SBR process.
  7. Streamlined Process: With a defined, short timeline for creating and voting on the restructuring plan, the SBR scheme minimises disruptions and accelerates the path to recovery.
  8. Cost-Effective: There is a fixed price for the SBR, which must be agreed upon before a RP commences work. This fixed fee provides businesses with certainty that costs won’t continue to mount during the process (as they can with Voluntary Administration).
  9. Fast Turnaround: A resolution can be expected within 36 days of commencing the SBR. This means that in just over one month, business owners have a clear vision of where their business stands, and a path for moving forward.

Who is the SBR Scheme for?

To be eligible for the SBR scheme, a business must:

  1. Be insolvent, or at risk of insolvency.
  2. Have total liabilities under $1 million (excluding employee entitlements).
  3. Be an incorporated entity under the Corporations Act 2001.
  4. Meet compliance requirements: Outstanding employee entitlements must be paid and tax lodgments must be up to date.
  5. Confirm that the business and/or Directors involved with the business have not previously participated in SBR or simplified liquidation within the past seven years.


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How to restructure a small business via the Small Business Restructure scheme

  1. Confirm that your business is insolvent or likely to soon become insolvent. Some indications your business is insolvent or nearing insolvency include declining revenue, escalating expenses and excessive debt, however other factors can also lead to insolvency. It will often be clear to business owners that their business is in dire straits, however if you aren’t certain, seeking an assessment from a business accountant is crucial.
  2. Confirm Eligibility. Given the SBR is only available to businesses who fit the eligibility criteria, you need to do an eligibility check using the SBR eligibility checklist. (You can also do our 30 Second Eligibility Checklist.)
  3. Company directors’ Meeting. If eligible, the company directors must call a meeting to formally acknowledge the company’s financial difficulties, and to resolve to appoint a Restructuring Practitioner.
  4. Identify and Appoint a Restructuring Practitioner (RP). Company directors must identify a Restructuring Practitioner (RP) to assist them through the SBR. When researching RPs, it’s important to ensure they are listed as a Registered Liquidator (RL) with ASIC. (All the RPs working for Business Rescue Solutions are registered RLs.)
    As part of the RP appointment, the RP will confirm that your company meets all the conditions required for SBR, including up-to-date tax lodgments and paid employee entitlements. They will also outline their fixed fee, which must be agreed upon before they commence work on your SBR.
  5. Develop the Restructuring Plan (20 Business Days). After the appointment is finalised, your RP will work with you to understand your financial situation and draft a Restructuring Proposal Statement to present to creditors. The statement will outline the:
    • amount of debt owed to each creditor
    • percentage of that debt the creditor would receive as part of the plan
    • proposed repayment terms, and
    • period of time in which your business will resolve the debt.

    There is a 20-business-day window for this proposal to be prepared and sent to creditors, however an RP can request a further 10 days to complete the proposal.

  6. Creditor Voting Period (15 Business Days). Upon receipt of the plan and Restructuring Proposal Statement, creditors have 15 business days to review and vote on the plan. If creditors holding more than 50% of the debt by value agree, then the plan is considered approved.
    During this time, creditors may contest the stated amounts of debt. The RP will work with the creditors to resolve these disputes.
  7. Plan Implementation & Compliance. Once creditors have approved the plan, the RP works with the company to implement the restructuring plan according to the agreed terms. As per the plan, payments to creditors are made, and the RP will oversee distribution of payments to ensure compliance.
    During this time, company directors continue to manage all business transactions as usual, however any actions outside the usual course of business must be discussed with the RP and approved. This ensures that the restructuring stays on track, and that the terms of the restructure plan aren’t being violated.
  8. Plan Completion. When all terms of the restructuring plan are fulfilled, the company is considered free from its previous debts.
FAQ

The SBR is quite a time-efficient process, with a period of 20 business days to draft the restructuring plan (plus 10 days if the RP extends the planning period), and a period of 15 business days for the creditors to vote on the plan. This means that the plan can be completed within 35 business days.

Once creditors agree to the SBR proposal, your business may have anything up to three years to repay the debt. The length of time will be outlined in the restructuring plan.

It’s imperative that all terms of the plan are met. If they aren’t, companies are required to immediately pay any remaining debts. They may also face the possibility of liquidation.

To check that an RP is registered, visit the ASIC website and navigate to the “Registers” section. Check the “Insolvency Practitioners” register, where ASIC lists registered practitioners. Here you can check if the RP is “Current” or “Active.” If their name doesn’t appear in the register, they may not be officially registered. To be certain, contact ASIC directly.

All Restructuring Practitioners working with Business Rescue Solutions hold an ASIC registration.

Complete our 30 Second Eligibility Checklist to find out if your company qualifies for the SBR, and to connect with a registered Restructuring Practitioner.