Small Businesses: New Options for Restructuring due to COVID-19

Businesses have until 31 March 2021 to access a new debt restructuring process, which has allowed eligible companies to retain control of their business while entering into a restructuring plan.

This is particularly valuable for small businesses suffering financially due to the impacts of COVID-19. While restructuring can often be confusing and intimidating, the new simplified debt restructuring process is streamlined in hopes of supporting the survival of small businesses that would otherwise consider insolvency.

The eligibility requirements to access this restructuring process include:

  • Incorporation as required under the Corporations Act 2001;
  • Company liabilities of less than $1 million, excluding employee entitlements, at the time of commencing restructuring;
  • Company insolvency or likelihood of insolvency;
  • Appointing a small business restructuring practitioner.

Accessing Simplified Debt Restructuring

To access this new debt restructuring process, you must first declare your intention to access the restructuring process by publishing the declaration with ASIC by 31 March 2021. This will permit you an additional three months of insolvency relief, for the purposes of finding and retaining a Small Business Restructuring Practitioner. Notify the Australian Securities and Investments Commission (ASIC) within 5 business days that you have made a declaration.

The Role of the Small Business Restructuring Practitioner

The Small Business Restructuring Practitioner (SBRP) will assist you in creating a restructuring plan for your small business, and oversee your company’s debt restructuring process. This mainly comprises a proposal outlining how and when the creditors of your business will be repaid, in accordance with a restructuring schedule. The restructuring schedule names all of your business’ creditors, the amount your business owes them, and when the amounts become due and payable. A SBRP may be found through ASIC.

You’ve Accessed Simplified Debt Restructuring – What Next?

  • The news you want to hear: you remain in control of your business and the restructuring process, in conjunction with a SBRP;
  • Your company must firstly pay any outstanding employee entitlements, and ensure that any outstanding tax lodgements have been lodged with the ATO;
  • Your company then develops a debt restructuring plan and proposal, with assistance from the SBRP;
  • The debt restructuring plan and proposal must be made available to creditors within 20 business days of commencing restructuring, though it can be extended up to 10 business days on a case-by-case basis;
  • The creditors of your company vote on the debt restructuring plan and proposal within 15 business days. The plan is approved if more than 50% of your company’s creditors accept it;
  • You can continue to trade in accordance with operations in accordance with the ordinary course of your business. If a transaction falls outside of your business’ day-to-day operations, this must first be approved by the SBRP;
  • Your company is released from the plan at the time when all of its debts are paid.

While this process has been simplified and created with contemplation of the plights of small businesses during COVID-19, restructuring is not without its implications. If your creditors do not accept the restructuring plans for your company, not only can they can enforce their rights, but your protection from liability for insolvent trading ends.

If you would like to speak with an experienced business and insolvency lawyer, call us at (02) 4929 7002, email us or complete an enquiry form.