What is the Small Business Restructure Regime?

On the back of Covid, it was predicted that Australia would experience an influx of small businesses forced into insolvency as they navigate through some of the toughest economic times in a generation. In January 2021, the government introduced the Small Business Restructure (SBR) Regime, offering business owners an alternative to liquidation or voluntary administration. Short story: it’s great news for businesses finding themselves in debt of under $1 million that they’re not currently able to meet. Long story: read on.

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How does the SBR work?

The key points to make here are that the SBR allows business owners to remain in control of operations, and offers a way out of debt without needing to liquidate or enter voluntary administration. It’s cheaper and less complex than the latter options and means that creditor action is paused whilst the SBR process is followed.

To enter the SBR process, a small business restructuring practitioner (SBRP) must be assigned (we can refer you to one – they must be a registered liquidator). The SBRP will be responsible for guiding you through the process and assist with the creation of the restructuring plan.

Once the SBRP is assigned and a plan has been created, it’s then put forward to the company’s creditors. If more than 50% of creditors (calculated by value, not number) agree to the plan, then it is approved to be executed. Creditors are more likely to approve the plan if it’s to be implemented and completed quickly – debts paid off ASAP rather than over a long period of time. The SBRP then supervises the implementation of the plan and ensures all debts are paid as per the agreement.

In the meantime, business can continue as usual. During this period, unsecured creditors cannot bring action against the company.

Once the SBR plan has been completed, it’s important to note that directors are no longer protected from personal liability for insolvent trading. It’s crucial to get the right advice from your team (accountant and SBRP) before entering into and proposing a SBR plan.

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Who is eligible to enter the SBR?

• You must be a company with creditors of less than $1 million
• None of the company directors can be a director of another company who have already gone through the SBR process
• The company must have all tax lodgements and employee entitlements (pay, superannuation and leave already taken) up to date
• If your company doesn’t meet the above criteria currently, you can seek advice on how to either decrease debts so they amount to less than $1 million or pay employee entitlements so that you can then enter a SBR plan.

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Does ATO debt count?

Yes – and for many businesses entering into the SBR regime, the ATO is in fact their biggest creditor. To date the ATO has been fully on board with the regime, and they have provided comprehensive guidance as to their expectations from a proposed plan.

The uptake of the SBR regime started out surprisingly slowly, but is now gaining momentum as business owners realise it may be their only way (or certainly the most attractive way) to continue trading. If you’d like to discuss the SBR regime further, don’t hesitate to get in touch with us.