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Small business is a challenging game and even with skilled management and plenty of transactions, there can be factors that cause financial difficulties and debt.
In the past, when financial troubles arose, receivership and insolvency were the only options for small businesses. Now, to help your small business overcome financial distress, you may be able to access a single, streamlined process to restructure your debt while maintaining control over your operations.
What is simplified debt restructuring?
The Government made changes to Australia’s insolvency framework in 2021, to better serve small businesses, their creditors and their employees.
Simplified debt restructuring refers to the management of a small business’s debt so that it can avoid insolvency.
When a small business reaches a point where its unsecured debts are out of control, an independent professional known as a Small Business Restructuring Practitioner is appointed to a distressed debtor company. It’s not the company that is restructured but the company’s debt, via the creation of a restructuring plan.
The goal of this process is to provide better outcomes for businesses, creditors, employees and the economy.
Which businesses are eligible for simplified debt restructuring in Australia?
To be eligible to access simplified debt restructuring, a company must:
- Be incorporated under the Corporations Act;
- Have total liabilities which do not exceed $1 million on the day the company enters the process. This excludes employee entitlements;
- Resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed; and
- Appoint a small business restructuring practitioner (SBRP) to oversee the restructuring process, including working with the business owner to develop a debt restructuring plan and restructuring proposal statement.
All unsecured debts that were incurred prior to your business entering restructuring will be included in the restructuring plan. The exception is employee entitlements (including those not yet payable, like leave or redundancy entitlements).
When you go through the debt restructuring process, the SBRP will charge a flat fee to create a plan that sets out how creditors will be repaid. The plan will be accompanied by a restructuring proposal statement, which includes a schedule detailing your company’s creditors, and the amount they are owed.
Your business can continue to operate while the restructuring process is underway. With the help of an SBRP, you can complete your debt restructuring plan and proposal statement, and share it with creditors. They then have 15 days to decide if they want to accept or reject the plan. For it to be executed, more than 50 per cent of creditors have to agree. If more than 50 per cent do not agree, they are then able to enforce their rights and liquidation may be the next step. This is why you need the help of someone with experience; they will create a plan that is likely to be accepted.
Why undertake debt restructuring?
 Undertaking debt restructuring will give your business breathing room so you can review your debts and identify a way to repay them, and keep trading to get things back on track.
The benefit other than being able to continue operating is that if your business enters into restructuring, a moratorium is applied on unsecured creditor claims as well as some secured creditor claims.
This means unsecured creditors cannot begin, continue or enforce their claims. Similarly, owners of property (other than perishable property) used or occupied by your company, or people who lease such property to your company, cannot recover their property.
To add to this, secured creditors cannot enforce their security interest in your company’s assets (in some circumstances). Finally, a creditor holding a personal guarantee from the company’s director/s or their relatives cannot act under the personal guarantee without the court’s consent.
Crest Lawyers help?
Crest Lawyers recently helped a client in significant debt to the ATO. Through the Covid-19 pandemic, the client has amassed nearly $750,000 in ATO debt. The client knew that the fundamentals of the business were solid, but not without being able to reduce its debt. By using the debt restructure outlined above, Crest Lawyers was able to reduce our client’s debt by 70%. The client is now happy running his business without the stress of his Covid debt hanging over his head or destroying his business.
Need help to restructure your business debts? Reach out to Crest Lawyers today.
