Small Business Restructuring Sydney

What is Small Business Restructuring?

Small Business Restructuring (SBR) is a government scheme offering a lifeline to small businesses facing mounting debts and potential insolvency.

Eligible small businesses in financial distress that participate in the SBR are offered the option of renegotiating historical debts with creditors, when those debts are restricting their ability to trade effectively. As a result, compromises between the business and their creditors may be made that involve the business agreeing to pay back debts in part over a defined period of time and the remaining debt is written off.

Whilst arrangements are negotiated, small business owners remain in control of operations. On the whole, the scheme allows small businesses breathing room to manage what may seem like insurmountable debts. It also allows them to plan for their future with a clear picture of their viability.

Note that the SBR is different from general business restructuring, which involves things like adjusting how a business operates, changing organisational structure, selling assets, and other cost reductions. (Whilst these adjustments may be made by the business alongside an SBR, they fall outside the scope of the SBR.)

The Benefits of a Small Business Restructure – Sydney

If you have a small business in Sydney in financial distress, you can expect the following benefits from participating in a Small Business Restructure:

• An honest assessment of your current predicament, whether or not your business is able to be salvaged, and whether it has a viable future.
• Reduction of debt, via compromises with creditors, tax relief, and other restructure measures.
• Usually provides a better return for their creditors (compared to a hypothetical liquidation scenario).
• A map for future business success, rather than being stuck on past problems.
• A swift turnaround for a resolution (with Business Rescue Solutions, you can expect an SBR resolution within 36 business days). This means that in just over one month you have a clear vision of where your business stands, and a path for moving forward.
• Clarity of payment for Business Rescue Solutions’ services at the outset – no hidden surprises. (The SBR is done at a fixed price which must be agreed to before it commences.)
• A temporary moratorium on unsecured creditors enforcing the repayment of their debts (including personal guarantees) during the restructuring phase (eligibility criteria apply).
• Our Small Business Restructure Practitioners (SBRPs) are registered with ASIC as ‘registered liquidators’.
• The SBR process is supported by the government (see Sept 2020 Treasury press release).

Take the 30 second test

Small Business Restructuring Sydney – The Restructuring Practitioner’s Role

A key part of undergoing an SBR is appointing and working with a Restructuring Practitioner (RP). Restructuring Practitioners are usually Registered Liquidators (RLs) with ASIC, and trained to also work as RPs.

Initially, the RP confirms that your company meets all the conditions required for SBR, including that your tax lodgements are up-to-date and that employee entitlements are paid. They then outline their fixed fee, which must be agreed upon before they commence work on your Small Business Restructure.

Once appointed, the RP assesses the predicament your business is in, and works with you to draft a Restructuring Proposal Statement to present to your creditors. This statement outlines 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 the
• period of time in which your business will resolve the debt.

Within 20 business days, creditors are sent the proposal, (an RP can request a further 10 days to complete the proposal).

Note that during the Small Business Restructure, the RP does not involve themselves in ordinary business operations, and your company directors retain control.

Business Rescue Solutions – Registered Small Business Restructure Practitioners for Sydney & NSW

As experienced SBR Practitioners, we know the complexity involved with the SBR, and are here to support our clients across NSW to understand the process, and make things as transparent and simple as possible. As we proceed through the SBR, communication lines stay open and we answer any questions our clients have about proceedings.

The SBR Flow:

To start with, we ask business owners to complete our 30 second test, which helps clarify how the business is currently positioned, and how we can help. Following the test:

• We check to confirm your business meets the eligibility criteria for small business restructuring (see eligibility criteria below).
• Once appointed as your Restructuring Practitioners, we work alongside you to create a proposal to compromise historical debts. This must be presented to creditors within 20 business days of the SBR commencing.
• We act as your company’s agent, negotiating a plan with your creditors to settle historical debts.
• The creditors decide (within 15 business days) whether or not to accept the plan.
• If creditors accept the plan, your company must make payment of the agreed sum in either instalments, or in a lump sum (as per the plan).
• After the payment is complete, your company is no longer liable to pay the balance of the debt, and the debt is considered “cleared”.

Small Business Restructuring in Sydney – Eligibility

If you are considering small business restructuring, your company must fit the following eligibility on the day on which the restructuring practitioner is appointed:

• be insolvent or likely to become insolvent
• total liabilities of the company must not exceed $1 million
• no person who is a director of the company, or who has been a director of the company within the 12 months before the appointment of the restructuring practitioner, has been a director of another company that has been under restructuring or subject to the simplified liquidation process within the period of the preceding seven years, unless they are exempt under the regulations
• the company must not have undergone restructuring or been the subject of a simplified liquidation process within the preceding seven years.

We then check that, at the time the restructuring plan is proposed to creditors, that your company will have substantially complied with requirements relating to employee entitlement and tax filing obligations. A restructuring plan can’t be proposed until a small business has:

• paid the entitlements of employees that are due and payable (with the exclusion of employee entitlements not currently due to be paid)
• lodged returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act 1997). [Tax debts do not need to be paid – only the required returns lodged.]

For full details on eligibility, see the ASIC website.

Signs your Small Business Needs Restructuring

Here are some signs that would indicate that Small Business Restructuring (SBR) might be appropriate for your business:

• Large, unpaid tax debt: This is commonly the most prominent warning sign. Other signs can include ongoing losses, cash flow problems, overdue tax lodgements and difficulty gaining access to new credit.
• Declining Revenue: A sharp drop in sales or losses in revenue can jeopardise your operations, competitive position, and ability to meet financial obligations, suggesting an urgent need for business restructuring.
• Escalating Expenses: If your expenses outpace earnings, it threatens your solvency and ability to pay suppliers and creditors, indicating the need for cost control and financial restructuring.
• Excessive debt: High debt levels can divert time and resources away from your company’s growth and development. Unpaid tax debts and overdue tax lodgements are common warning signs that an SBR may be needed.
• Issues with cash flow: If your business struggles to maintain a steady cash flow, it can disrupt daily operations, harm supplier relationships, compromise your competitiveness, and risk insolvency.

How did Small Business Restructuring Come About?

Small Business Restructuring (SBR) commenced in January 2021 in the midst of the COVID-19 pandemic, when it became apparent many small businesses were suffering due to a range of challenges including travel bans, restricted trading, halts in supply chains, labour shortages, and more. Small businesses in tourism, hospitality, and the arts were particularly negatively impacted, however the pandemic affected many industries in unexpected ways.

In an effort to help small businesses survive, the Federal Government introduced reforms to Australia’s Insolvency Framework. The measures aimed to reposition Australia’s insolvency system to minimise the impacts of handling an insolvency, reduce the time small businesses spend on the insolvency process, and assist more small businesses to survive.

Whilst this scheme was initiated as a lifeline for businesses impacted by COVID-19, small business restructuring can apply to any eligible small business facing financial distress.

“The SBR process is designed to allow financially distressed, but commercially viable businesses, the opportunity to restructure their debts whilst continuing to trade. … To date, the ATO has supported most restructuring plans, voting in favour of 91% of them. Each plan is assessed on its merits and our voting history shows our commitment to supporting businesses through restructuring.”
Addressing collectable tax debt – Tax Institute’s Tax Summit 2023 | Australian Taxation Office (ato.gov.au)

Get Support Today

Contact Business Rescue Solutions for assistance with Small Business Restructuring. Our Restructuring Practitioners are Registered Liquidators, with experience helping businesses through the SBR process. Don’t wait till things worsen. The sooner you receive support, the more likely your business may be saved.

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