Australian small business restructure appointments have skyrocketed in just three years. Numbers jumped from 448 appointments in FY 2022-23 to 1,425 in FY 2023-24, and experts predict 3,000 appointments for FY 2024-25. These figures show how many businesses now rely on this lifeline.
Business owners face numerous challenges that can lead to financial difficulties. We’ve been there ourselves. The small business restructuring process helps owners keep control while they work through their debt problems. The results speak volumes: creditors approve 87% of all submitted plans. A successful restructure typically lets businesses settle 75-80% of unsecured debts, and they can pay the remaining 20-25% over two to three years.
Business Savers are the experts in business turnaround services. Today, they will give you a detailed breakdown of the small business restructuring plan. You’ll learn about eligibility criteria, process initiation steps, restructuring phases, and key stakeholders. The information here will help you understand how restructuring works, whether you’re looking to restructure your business or just want to learn more about the process.
What is the Small Business Restructuring (SBR) process?
Small business restructuring (SBR) has transformed Australia’s insolvency framework. This 2021 process under Part 5.3B of the Corporations Act 2001 gives eligible companies an efficient way to handle their financial challenges.
SBR helps financially troubled businesses restructure their debts through a simpler process. Company directors can keep control of their business throughout the restructuring. This “debtor-in-possession” model is the first time Australian insolvency law lets directors stay in charge during a formal insolvency process.
The SBR process has two main phases:
Appointment phase: Directors appoint a restructuring practitioner and get 20 business days (with a possible 10-day extension) to create a restructuring plan.
Plan implementation phase: The plan becomes binding and moves forward under the practitioner’s supervision once creditors approve it.
How SBR is different from voluntary administration
SBR lets directors run day-to-day operations, while voluntary administration (VA) puts an administrator in complete control. This key difference helps businesses stay stable during restructuring.
SBR also comes with several other benefits:
A shorter timeline of seven to nine weeks compared to VA.
Lower costs with simpler processes and reporting.
Different voting rules (SBR needs approval from more than 50% of creditors by value, not counting related parties).
No automatic move to liquidation if the plan fails.
Why Australia introduced the SBR process
The Australian Government launched SBR in January 2021 to help businesses during the COVID-19 pandemic. They wanted to give small businesses an affordable option when facing economic challenges.
Small businesses found the old processes like voluntary administration too expensive and slow, which often led to early liquidations. SBR created a solution for small businesses with debts under $1.5 million and simple debt structures.
SBR matches what international organisations like UNCITRAL, the World Bank, and INSOL International promote for small business restructuring. This process helps viable small businesses survive tough times, which benefits businesses, creditors, employees, and the economy.
Eligibility and how to start the SBR process
The first crucial step toward small business restructuring (SBR) is to check if your business meets the strict eligibility requirements. Let’s get into who can use this debt relief option and how to start the process.
Who qualifies for small business restructuring
Your company needs to meet these specific criteria to use the small business restructure process:
Registration under the Corporations Act (this works for Pty Ltd companies and corporate trustees, not sole traders or partnerships).
Total liabilities of $1.5 million or less (employee entitlements don’t count).
Current insolvency status or likely to become insolvent.
Payment of employee entitlements on time.
All tax lodgements must be current (you don’t need to pay tax debts yet).
The company and its directors (now and from the last 12 months) haven’t used SBR or simplified liquidation in the last seven years.
Companies with external administrators, liquidators, provisional liquidators, or deed administrators can’t access the SBR process.
Steps to appoint a restructuring practitioner
The board needs to complete these formal steps after confirming eligibility:
Directors must first decide that the company is insolvent or heading that way, and they need to bring in a restructuring practitioner. This decision should include the practitioner’s fixed fee for the proposal period.
The next step involves hiring a registered liquidator as the restructuring practitioner in writing. While all restructuring practitioners must be registered liquidators, some specialise exclusively in SBR work.
The company should pay all employee entitlements and submit required tax returns and activity statements before suggesting a restructuring plan.
Temporary relief and declaration process
Companies could get three months of temporary restructuring relief to find a practitioner throughout 2021. This specific option has ended, but companies can still protect themselves through the formal declaration process.
Directors need these steps to declare eligibility for temporary relief:
Write a declaration with solid reasons why the company is insolvent or likely to become insolvent.
Put this declaration on ASIC’s Published Notices Website.
Send ASIC a copy within five business days.
Companies receive protection from creditor actions after publishing their declaration. Directors must declare the company ineligible within five business days if things change and they no longer meet the criteria.
How the restructuring plan works
The small business restructuring (SBR) process centres around creating and implementing a restructuring plan. This process takes place in two phases. The entire journey typically lasts 35 business days.
What goes into a restructuring plan
A restructuring plan must clearly show which company assets will be handled and how. The plan needs to state the practitioner’s payment terms and execution date. The company can’t extend payments beyond three years or give non-monetary property to creditors. The company must pay all employee entitlements and submit tax lodgements before sending the plan to creditors, even if tax debts remain unpaid.
The role of the restructuring proposal statement
The plan comes with a statement that has a detailed list of all creditors and their owed amounts. This becomes the company’s official record of its debts and claims. Creditors get five business days to challenge any debt amounts after they receive the statement. The practitioner then takes another five days to review these disputes and make decisions.
Creditor voting and approval process
Creditors have 15 business days to cast their votes once they receive the plan. The plan needs more than 50% of creditors by value to vote yes for approval. Related party creditors can’t vote, which helps keep the process fair. Only votes from creditors who respond during the acceptance period count.
What happens if the plan is rejected
The restructuring process stops right away if creditors say no to the plan. While directors keep control of the company, they lose creditor protections. This means creditors can take enforcement actions against the company again. Directors also become personally liable for insolvent trading. Many businesses then look at voluntary administration or liquidation as their next steps.
Key roles and responsibilities during SBR
A successful small business restructure depends on balancing the relationship between practitioners, directors and creditors. These three parties have specific duties that need careful coordination throughout the restructuring journey.
What the restructuring practitioner does
Restructuring practitioners serve as independent overseers instead of controlling the business. Their main goal includes several key responsibilities. They help companies prepare restructuring plans and certify both eligibility and plan viability. The practitioners investigate company affairs and financial circumstances. Once the plan receives approval, they manage creditor disbursements. They also need to approve any transactions beyond normal business operations.
Unlike administrators, restructuring practitioners do not become personally liable for company debts or handle daily operations.
What directors can and cannot do
Directors keep their operational control during the small business restructuring process. Their responsibilities require them to maintain proper financial records and meet new trading obligations. The company’s employee entitlements need timely payment, and all tax lodgements must happen on schedule.
Directors face some restrictions. They need the practitioner’s consent to enter transactions outside normal business operations. The practitioner must also approve payments toward pre-restructuring debts.
How creditors are protected during the process
The process protects creditors through multiple mechanisms. The practitioner stays independent with specific obligations to creditors. A restructuring plan treats all admissible debts equally. Creditors have voting rights on the proposed plan. The process pauses legal actions against the company. Secured creditors keep their rights, though some limitations apply.
Conclusion
Small Business Restructuring has revolutionised Australia’s insolvency framework and helps struggling small businesses survive. This newer option meets a crucial need, as shown by the sharp rise in SBR appointments over the last several years. Business owners can now keep control while restructuring their debts, something traditional insolvency procedures don’t deal very well with.
SBR beats voluntary administration in several ways. Small enterprises now have better options during financial trouble thanks to shorter timelines, lower costs, and optimised processes. The success rate speaks for itself: 87% of restructuring plans sent to creditors get approved.
Business owners need to assess their eligibility carefully against strict criteria. The $1.5 million liability cap and employee entitlement rules are non-negotiable. While the process looks simple, you need solid preparation and a clear understanding of both proposal and implementation stages to succeed.
Directors, practitioners, and creditors are the foundations of any successful restructuring effort. Each group has specific rights and responsibilities that help balance business survival with creditor protection. This “debtor-in-possession” model has altered the map of traditional insolvency processes in Australia.
A rejected restructuring plan ends the process and its protections immediately. However, the SBR framework gives struggling businesses room to tackle their financial challenges. SBR will keep playing a key role in Australia’s business recovery world. It helps viable small businesses survive tough times while ensuring creditors get reasonable returns on their debts.
