How a Small Business Restructure Practitioner Can Transform Your Business

If you run a small business, you’ll be well familiar with the struggles that come with keeping afloat. Whether it be market volatility, staff shortages, issues with cash flow, or even a pandemic, when one or more of these issues prove insurmountable, it becomes essential to get external assistance, and fast.

Small Business Restructuring offers a viable solution when business challenges have put your small business at risk. With the help of a Small Business Restructure Practitioner (SBRP), you can navigate financial difficulties and prevent your business entering liquidation. With the expert guidance from a registered SBRP, you gain the ability to continue to trade, which is good news for owners, managers, employees and customers alike.

In this article we’ll look at what’s involved with small business restructuring and how it impacts your day to day operations, the role of the SBRP and the benefits of hiring one, and how best to find the right SBRP for your business.

What is Small Business Restructuring in Australia?

Small Business Restructuring (SBR) is a regime that was introduced in 2021 to deal with the volume of business insolvencies that arose after COVID-19. Many small businesses across Australia were in financial distress and faced liquidation. SBR aimed to offer eligible businesses a way of continuing to trade, whilst settling debts in a way they could realistically manage.

How does it work?

Small businesses, under the guidance of a Small Business Restructuring Practitioner (SBRP), work to create a repayment plan to present to creditors which can compromise creditor’s debts by up to 80%.. Creditors then must decide whether or not they agree to the proposal, and if they do, debts may be written off.

During the SBR period, the company is able to continue operations, under the SBRP’s supervision. Company directors control day-to-day activities, and the restructure practitioner doesn’t get involved in the company’s operations at all—they simply assist with the proposal and its presentation to creditors. The SBRP works for a fixed fee, meaning that businesses know upfront how much the process will cost, as opposed to working through a Voluntary Administration (VA), where administration fees are unknown at the outset.

SBR differs from voluntary administration. In voluntary administration, the owners of a business relinquish control of their business once the insolvency process commences. SBR is an attempt to avoid this happening, and hopefully enable the business to continue into the future.

What types of businesses are eligible for SBR? Eligible businesses must be insolvent or likely to become insolvent. They also must not have total liabilities greater than $1 million (excluding employee entitlements). Other eligibility requirements apply, including up to date superannuation and wages.

What Does a Small Business Restructure Practitioner Do?

SBRPs are engaged by small businesses to guide them through the small business restructure process. Essentially, their job is to balance the interests of both the business and its creditors, while guiding the company through the complexities of financial recovery.

Here’s a rundown of their responsibilities during the SBR period:

Conducting a business assessment: The SBRP assesses the business to gain an understanding of its financial situation. During this assessment, the SBRP will work with the business to identify issues within the business that need to be addressed, and will evaluate whether or not the business can be viable after SBR. If they deem the business is viable, they proceed to the restructuring process plan.
Creating a Restructuring Plan: A formal restructuring plan needs to be developed by the business, with the guidance of the SBRP. The practitioner assists the business to draft a proposal to present to creditors. The proposal will outline how the business intends to settle its debts.
Liaising with and Presenting the Plan to Creditors: The SBRP will act as a mediator between the business and its creditors. They will speak with creditors, verify their claims and may address any disputes that arise. They will also seek the creditors’ agreement of the proposed payment plan.
Monitoring Compliance: Businesses must continue to operate within the law during an SBR, so the SBRP will check they are adhering to the terms agreed to in the SBR plan.
Providing Oversight: The SBR will not control business activities during the SBR phase, however they’re required to approve transactions that fall outside of the ordinary course of business.

The Benefits of Hiring a Small Business Restructure Practitioner

If your business is in distress and you wish to undergo small business restructuring, it’s essential to engage an SBRP.

The benefits of hiring an SBRP are:

You get to maintain control of your business. In liquidation and other insolvency processes, you essentially have to give up control of your business. For the SBR process, the practitioner merely handles the SBR process, meaning your business may continue to trade.
You receive expert guidance. SBRPs are well trained in assisting businesses through complicated financial situations, and they understand how to maximise the possibility of success. SBRPs are also experts in financial restructuring, so you are in good hands if you work with a registered SBRP.
You pay a fixed fee. Unlike insolvency proceedings, where costs are unknown at the outset and may continue to mount up during the process, the SBR may only take place if there is a fixed-fee agreement between the small business and the SBRP. This means, if your business has limited resources, small business restructuring may be a viable option.
Your creditors have greater confidence. If your creditors see that you are under the guidance of a registered SBRP, they have a greater sense of reassurance that your business is taking proper steps to repay debts. This can mean that they may agree to more favourable terms of payment than they otherwise would, and may work with your business in the future.
You may be able to reduce your debt to creditors. Your SBR proposal may involve you negotiating to pay sometimes up to 80% less than the full amount owed to your creditors. So, if your business looks unlikely to survive with your debt obligations, this reduced debt might be the lifeline you need to save your small business.
You may be able to preserve relationships with creditors. Because there is transparency and structure involved with the SBR process, creditors understand that your business is taking its obligations seriously, and seeking help. This builds confidence, and may make it easier for your business to continue to trade after the SBR is complete.
A favourable view by the ATO. The ATO welcomes the SBR process, mainly because part of the eligibility for an SBR is that all business tax returns have been lodged. This means that the ATO has full understanding of your business’s tax debts, if applicable.
The process is quick. A small business restructure plan can be implemented in 36 business days, meaning that your business can quickly understand its position and likelihood for success in a relatively short time frame. This can relieve a lot of pressure for small business operators, who struggle when there is no end in sight.

Choosing a Small Business Restructure Practitioner

The success of your small business restructure could hinge on the practitioner (SBRP) you select to work with.

Here are some factors to consider when looking for an SBRP.

Experience and Qualifications: To act as a restructuring practitioner for a company or for a restructure plan, a practitioner must be registered with ASIC as a ‘registered liquidator’. You can search the professional register here. In addition to being registered, it’s ideal that they have ample experience in working on small business restructures.
Clear Communication: It’s important that you understand what’s going on during the SBR process. So when speaking with a potential SBRP, try to get a sense of how well they’re able to explain complex legal and financial terms with you in simple language. If you find that they aren’t trying to put things into terms you can understand, then they might not be the right practitioners for you. After all, in order to make informed decisions, it’s crucial you are clear on what is going on in the SBR and how it impacts your business.
Reputation: It’s a good sign if a potential SBRP has a solid track record of successful SBRs for other businesses. Check reviews and testimonials from previous clients or ask for references.
Transparency on Costs: The cost of restructuring can vary, so it’s important to agree on fees upfront. The SBRP should provide a transparent breakdown of their costs and explain how they will be managed and paid throughout the process. The determination of restructure costs must be confirmed through a formal resolution between the company board and the SBRP, before or on their appointment.

Case Studies: SBR Success Stories

Business Rescue Solutions has been involved in many small business restructures. Here are a couple of examples of how we helped small businesses through the SBR process:

Case Study #1: Construction Business
A steel production and installation business in Victoria struggled due to COVID-19 effects, including a global steel shortage, rising material costs, and high fixed expenses, which led to revenue declines. Facing approximately $380,000 in unsecured debt (mostly owed to the ATO), the business opted for a Small Business Restructure (SBR) rather than liquidation.

Under the restructuring plan, a $75,000 payout was proposed for unsecured creditors after related party creditors waived participation, resulting in a better outcome than liquidation. Creditors approved the plan, allowing the director to continue operations with reduced debt and avoid voluntary administration.

Case Study #2: Hospitality Business
A regional Victorian café with 22 employees faced severe financial strain due to COVID-19 lockdowns, reducing sales and accumulating debt while maintaining fixed costs. With $260,228 owed to the ATO, an additional $114,000 unfair preference claim, and a $320,000 director’s loan, the café was profitable before lockdowns and had returned to profitability afterward, but its COVID-related debt risked its survival.

The restructuring plan proposed a $48,250 payout to the ATO, equating to an 18.54% return. The ATO, as the sole creditor, accepted, enabling the director to continue operations without further debt or the need for voluntary administration.

The Future of Small Business Restructuring: What the future holds

When considering the future of the SBR, it’s worth looking at what’s happened so far, and how businesses have taken to the scheme. Whilst small business restructuring is a preferable option to voluntary administration, the SBR scheme has had less of an uptake than expected. An ASIC report released in January 2023, and covering small business restructurings for the period from 1 January 2021 to 30 June 2022, found there were a total of 82 restructuring practitioner appointments in Australia during that time period, with 72 transitioning to restructuring plans.

The main industries taking up SBR were construction, food services, retail trade and accommodation businesses. The majority of restructuring plans were implemented, and where SBR plans were implemented or ongoing, the business continued to trade, which is good news. On the downside, there was a lower than expected uptake of the scheme for the following reasons:

Some eligible businesses found the scheme too complex, and hence, didn’t proceed with an SBR;
Some businesses found SBR to be too expensive, despite it costing much less than voluntary administration;
The threshold of AUD $1 million in liabilities meant that some small businesses interested in the scheme were ineligible for it;
The requirement to comply with particular tax lodgement requirements meant some businesses were not able to partake in the scheme.

The future of the SBR:

The SBR scheme continues to be reviewed, as part of a larger inquiry into Australia’s corporate insolvency framework. As part of this, there is suggestion that:

The AUD $1 million debt threshold may be raised, so that more businesses may partake in the scheme.
A wider range of businesses from different industries will access the SBR scheme.
The restructuring process will be made more streamlined and hopefully more flexible, enabling more small businesses to enter into SBR arrangements.
More registered liquidators will practise only as restructuring practitioners for a company or for a restructuring plan, rather than also as external administrators.

Business Rescue Solutions – Small Business Restructuring Services

If your small business is facing insolvency, contact us to find out if you’re eligible for Small Business Restructuring or take our 30 second eligibility test. We can match you with a registered practitioner and get the ball rolling quickly, so that you can gain a clear picture of the future of your business. Fees are fixed upon your agreement.

Call Us: 1300 382 716

advice@businessrescuesolutions.com.au