Backs to Basics: Small Business Restructuring

Michael Adams, Accountant

Under the guidance and assistance of a restructuring practitioner, an eligible incorporated company with creditor consent can compromise its debts to achieve future profitability and viability.

A Small Business Restructure (“SBR”) permits directors to retain control of the business while a restructuring plan is developed over the 20-business-day period following commencement.  Reprieve from existing (pre appointment) debts is available as a temporary freeze is placed over creditor enforcement.  Ongoing debts from commencement must be paid in the ordinary course.

The restructuring plan, where proposed, will typically request that all creditors accept a lesser amount owed to them on a pari passu basis.  Any payment plan cannot be greater than three years.  Creditors are then asked to vote on the plan within 15 business days.

If the plan is accepted by the majority in value of voting creditors, then all creditors are bound by the plan even if they did not vote.  The directors continue to remain in control of the business with the plan practitioner responsible for receiving and paying out money under the plan.  Once all payments under the plan are complete, the company is released from all creditor debts that were subject to the plan. 

An SBR is available for incorporated companies that have not previously used the mechanism and have total liabilities less than $1 million.  In addition, before a plan is offered to the creditors, the company must pay all outstanding employee entitlements that are due and payable and make the required tax lodgements.

Data released by the ASIC indicates that 92% of proposed restructuring plans sent to creditors were approved with 66% of companies that implemented a restructuring plan appearing to continue operating as a going concern. As such, it is evident that an SBR can provide valuable recourse in situations where the business may otherwise have to cease trading.

The above constitutes a brief outline only of the SBR process. For more information please contact your local Hamilton Murphy office or email info@hamiltonmurphy.com.au