As discussed in our previous newsletter, Covid-19 has seen unprecedented Government stimulus and legislation. Accountants in Sydney have been closely monitoring these developments to ensure they can guide businesses through these challenging times.
This includes the new Small Business Insolvency Reforms, which commenced on 1 January 2021 and have continued from the insolvent trading “Covid-19 Safe Harbour” provisions which ceased on 31 December 2020. These provisions provided company directors with temporary relief from the potential liability of insolvent trading.
These Small Business Insolvency Reforms are designed to help small businesses remain viable and provide a better return to creditors while reducing the cost and burden of external administration if they have to be wound up.
External administration of a small business can be expensive and arduous. As a result, small business owners are often reluctant to consult a restructuring adviser. When they finally engage in a restructuring adviser, it’s often too late, and they are left with the only option to liquidate the company.
The Small Business Insolvency Reforms aim to assist eligible small businesses to transition from the temporary relief of personal liability for insolvent trading to a formal debt restructuring plan (discussed below) and/or a simplified liquidation process (beyond the scope of this article).
Eligibility:
- Total liabilities must be less than $1,000,000 (including related party loans but excluding employee entitlements)
- The company or any director must not have used these restructuring or simplified liquidation rules within the last 7 years (for this company or any other company they are a director of)
Restructuring Practitioner (RP)
- Suppose a company is eligible for the Small Business Restructuring Process (SBR). In that case, the directors will resolve that the company is insolvent or likely to become insolvent and that an RP (registered with ASIC) should be appointed.
- The RP cannot be revoked or removed, or changed by creditors
- The RP will advise the company, assist in preparing the restructuring plan, make a declaration to creditors, and will NOT deal with day-to-day trading but will have to authorise transactions outside the day-to-day trading (e.g. sale of business or payment of a dividend).
- Once the RP is appointed, creditors cannot begin, continue or enforce claims against the company and cannot enforce personal guarantees (during the “proposal period”)
- Once the RP is appointed, the company has 20 days to prepare its restructuring plan and send it to creditors (this is the “proposal period”). This period can be extended by up to 10 days.
- The restructuring plan must identify the company debts and property to be dealt with under the plan, include a declaration by the RP (that the company will meet its obligations under the plan as and when they become due and payable), must last less than 3 years and treat all creditors equally
- The creditors then have 15 days to advise the RP of their acceptance (this is the “acceptance period”). The plan is accepted at the end of the acceptance period if a majority of creditors, in value, agree.
When does the Restructuring Process end?
- If creditors accept the restructuring plan
- If the directors resolve to end it
- If the RP does not believe the company is eligible
- If the RP believes it is in the best interest of creditors
- If the company fails to prepare a restructuring plan
- If the creditors vote against the plan
- If an administrator or liquidator is appointed
When does the Restructuring Plan end?
- If the company pays all the debts under the plan
- If a specified event does not occur within a specified period
- If there is an infringement of the plan that is not rectified within 30 business days
- If an administrator or liquidator is appointed
If you are in any doubt about your company’s viability and solvency, please get in touch with us ASAP. Leaving it too late may make the restructuring plan option unavailable for your company.
Kreston Stanley Williamson Team
*Correct as of February 2021
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
