There’s no denying we live in turbulent times. As a result, many businesses find themselves facing insolvency, despite doing everything ‘right’.
If you’ve had money difficulties but want to hold on to your business and feel like there is hope for a positive outcome, one solution can be to press ‘pause’ and get help to restructure your debt.
Here’s an explainer of simplified debt restructuring for Australian small businesses.
How does restructuring help to save businesses from insolvency ?
In the past, Australian businesses facing insolvency have had no choice but to be placed in the hands of a liquidator. Updates made to the law in 2021 mean that if your business has less than $1 million in debt, you have more options and the ability to stay in control while you figure out your next steps.
Referred to as ‘simplified debt restructuring’, this process requires your business to appoint a Small Business Restructuring Practitioner (SBRP) to help restructure your unsecured debts (outside of what you owe your employees) so you can avoid insolvency. If your company is in trouble, this practitioner will work with you and your creditors to come up with a plan that will take care of and relieve debts.
To be eligible for debt restructuring, your business must:
- Have less than $1 million in liabilities (not including employee entitlements)
- Be either insolvent or likely to become insolvent at some future time
- Be up to date with the payment of employee entitlements
- Be up to date with all tax lodgements (not necessarily tax debt)
- Not be under other restructuring or administration including a Deed of Company Arrangement or liquidation.
It’s also important that none of the business directors have gone through a similar process in the last seven years (your SBRP will check to ensure you meet all the requirements during your initial discussions).
If you are eligible for debt restructuring and your creditors agree to the proposal put forward, your business can continue to trade and avoid insolvency.
Your restructuring plan
Your SBRP will have 20 days to come up with a way to pay back the money you owe or absolve you of your debts. You’ll need to share all your financial information so this person can identify the best way to move forward.
Your plan may specify ‘cents in the dollar’ that you will repay or detail how you will return money to your creditors. It’s worth noting that additional debts incurred after you have enlisted the help of a restructuring expert will not be included in your plan.
Working closely with your SBRP, you’ll create a restructuring proposal statement, which includes a schedule setting out the company’s creditors, and the amount they are owed by your company.
Throughout the process, you’ll stay in control of your company and be able to trade. Once you have a debt restructuring plan, a proposal will be put to your creditors, who have 15 business days to accept or reject your suggestions.
Why restructure your debts?
It’s never a great feeling to reach out for support but if your company is in financial trouble, you can undergo the debt restructuring process and have temporary relief from the fear that your creditors can enforce their claims against you.
If more than 50 per cent of voters agree to the terms you put forward, your company can continue to trade and you can pay off your debts according to the plan.
How does a small business restructuring practitioner help?
The rules and process for restructuring debt are complex, which is why it’s mandated that you reach out for the support of a registered specialist.
Your SBRP will firstly confirm you are eligible for debt restructuring. Then they will get to know your business, prepare your plan and circulate it to your creditors, confirming at the same time that they believe you will be able to meet your obligations.
Once a plan is made, shared and agreed on, your small business restructuring practitioner manages the disbursement of payments to your creditors, based on the terms set out in the plan.
While simplified debt restructuring has saved many small businesses since 2021, there is fine print to be aware of. You can read more at treasury.gov.au or reach out to Crest Lawyers for more information.
Disclaimer: The content contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice.