In January 2021 the government introduced a new option for struggling small businesses.
This is only for incorporated businesses (companies and trusts, not sole traders or partnerships) that have a viable future.
Its quicker, cheaper and easier than traditional options like liquidation or administration.
Australian Government says:
The Government has made changes to Australia’s insolvency framework to better serve small businesses, their creditors and their employees. As part of these changes, the Government has introduced a new, simplified debt restructuring process for eligible small businesses from 1 January 2021.
The process allows financially distressed small businesses to access a single, streamlined process to restructure their debts, while allowing the owners to remain in control of their business. This will support more small businesses to survive, meaning better outcomes for businesses, creditors, employees and the economy.
Once you enter the process:
• the company stays in control of the process, and may undertake transactions that are in the ordinary course of business;
• the company develops a debt restructuring plan and a restructuring proposal statement which is put to creditors for a vote; and
• the company is assisted in this process by its small business restructuring practitioner.
The company must put a restructuring plan to its creditors within 20 business days of entering the process. The company’s small business restructuring practitioner can extend this period by up to 10 business days where an extension is reasonable in the circumstances. Once a plan is put to creditors, they have 15 business days to vote to accept or reject the plan.
The whole process takes approx 7 weeks.
A plan is accepted if more than 50 percent of the creditors by value that vote, vote to accept the plan.
Often the ATO is the largest creditor, their aceptance makes or breaks the submission. If the proposal is rejected you cannot make another attempt for 7 years.
If the restructuring plan is not accepted, the restructuring process ends.
You remain in control of the company but creditors are no longer prevented from enforcing their rights and you are no longer protected from liability for insolvent trading.
You may wish to consider placing the company into liquidation.
Small business restructuring practitioners must be Registered Liquidators. They must possess suitable experience, knowledge and abilities, and have their registration granted by an independent committee convened by ASIC.
A new classification of Registered Liquidator can take on the role of restructuring practitioner only. They are required to be recognised accountants who have demonstrated the capacity to perform the functions and duties of the role.
Businesses should only deal with a practitioner who is registered.
Your current licenced expert (tax and BAS agents) will need to ensure your lodgements and staff entitlements are up to date and will work with your restructuring practitioner.
Info sourced from https://treasury.gov.au/sites/default/files/2020-12/simplified-debt-restructuring-fact-sheet_0.pdf
