Small Business Restructuring
At APL Insolvency we specialize in helping business owners when their company is facing insolvency. We understand both the challenges and responsibilities directors must deal with including the need to take action when their company is having difficulty paying its debts.
We seek to find solutions that allow your company to overcome financial challenges and continue to trade. Our goal is to always help you take a proactive approach that effectively manages the threat of insolvency and provides the best outcome for all stakeholders.
If your company is experiencing financial difficulty, the team at APL is here to help you understand the options that may be available.
One of the available options is Small Business Restructuring (SBR). Here is some information about the small business restructuring process to help you understand when SBR might be the best choice for your company.
What is Small Business Restructuring (SBR)?
The small business restructuring (SBR) process involves the development of a debt restructuring plan to deal with the company’s outstanding debts. Eligible small businesses work with a Small Business Restructuring Practitioner (SBRP) to develop a debt restructuring plan to propose to creditors while retaining control of the business.
If the restructuring plan is accepted, creditors receive a lesser amount as repayment of their outstanding debt and the company’s unsecured debt burden is therefore significantly reduced.
Are all businesses eligible to undertake SBR?
There are a number of criteria that must be met in order for a company to be eligible for the SBR process, including that the company must:
- be registered with ASIC as a company
- have total liabilities not exceeding $1 million (excluding employee entitlements)
- not have undertaken SBR (or simplified liquidation) within the preceding seven (7) years
- not have director(s) (or former director(s) who have been involved in SBR (or simplified liquidation) within the preceding seven (7) years
- have paid all employee entitlements that are due and payable
- have all tax lodgements up to date
- not be under any other form of insolvency administration, liquidation or restructuring
What does the SBR process involve?
Commencing a SBR is straightforward. The company’s directors pass resolutions that the company is, or is likely to become, insolvent and that a SBRP needs to be appointed. After the necessary documents are signed and lodged with ASIC, the appointment commences. A SBRP must be a Registered Liquidator.
During the SBR period, company directors remain in control of the business and can continue trading the business as usual, provided they enter into transactions or deal with company assets in the ordinary course of business.
However, during the SBR period, directors require the consent of the SBRP to enter into transactions or deal with company assets outside the ordinary course of business.
In addition to developing and executing the restructuring plan (if accepted), directors must also assist the SBRP as reasonably required including providing information as required by the SBRP.
The role of the SBRP during the SBR period is to provide advice to the directors about the restructuring as well as to assist the directors to prepare a restructuring plan and to implement the plan (if accepted). The SBRP acts as the company’s agent.
The SBRP also has a range of functions, duties and powers including powers to terminate the restructuring, and to resolve disputes regarding the amount of a creditor’s debt or claim.
How long is the SBR process?
Following the appointment of a SBRP, directors generally have twenty (20) business days from that date to work with the SBRP to develop a restructuring plan.
Once a restructuring plan has been prepared, it is required to be certified by the SBRP before it is then sent to the company’s creditors for consideration.
Creditors then have fifteen (15) business days to vote to either accept or reject the proposed debt restructuring plan.
Can unsecured creditors pursue claims during the SBR process?
During the SBR period, unsecured creditors are restricted from taking certain actions such as enforcing personal guarantees or pursuing legal action (unless they have obtained the SBRP’s consent or permission from the court).
This moratorium ends once a restructuring plan is entered into or SBR process otherwise ends.
Who votes on the plan?
All unsecured creditors with admissible debts or claims are entitled to vote on a proposed restructuring plan. This does not include employee entitlements.
Secured creditors may vote on a proposed restructuring plan however, only to the extent of the difference between the value of their registered security interest and their admissible debt or claim (if the debt is greater value of the security interest).
Excluded creditors – such as related creditors or the company’s restructuring practitioner - may not participate in voting on a restructuring plan.
What happens when creditors vote on the plan?
There are no meetings of creditors during the SBR process.
Voting on a proposed restructuring plan occurs by postal vote. The restructuring plan is considered accepted If a majority of creditors (by value of their debts) vote in favour of the proposed plan.
If the plan is accepted by creditors, the directors remain in control of the business. and the SBRP becomes responsible for the implementation of the plan, including receiving and distributing funds to creditors as required under the plan (all admissible debts and claims rank equally and no creditor, or class of creditor, receives priority in respect to their debt or claim).
A restructuring plan is binding on all creditors of the company (to the extent of their admissible debts or claims) as well as on the company, its officers and members and the restructuring practitioner for the plan.
If a majority of creditors (by value of their debts) vote to reject the plan, then the SBR process comes to an end.
A company is not automatically wound up if a proposed debt restructuring plan is rejected by creditors – it is up to the directors to choose another course of action at that stage (potentially another insolvency process such as a voluntary administration or liquidation).
What is the effect of the restructuring plan on secured creditors and lessors?
A restructuring plan is binding on secured creditors (including owners or lessors) subject to certain conditions.
If the value of a secured creditor’s registered security interest is:-
A restructuring plan does not prevent secured creditors from dealing with their security unless they voted for the plan (and the plan prevents them from doing so).
Similarly, a restructuring plan does not affect the rights of owners or lessors of property (except in the case of PPSA retention of title property) in relation to their property, unless they voted for the plan (and the plan affects those rights).
Is the restructuring made public?
The SBR process is considered a type of ‘external administration’ under the Corporations Act 2001 and therefore, ASIC’s company register will record that the company has appointed a SBRP and entered external administration (“EXAD”). The information on ASIC’s company register is publicly available.
When a company enters a restructuring plan or the SBR period ends, the company’s status on ASIC’s company register will revert to “Registered”.
During the SBR period, all public documents of the company should show ‘Restructuring Practitioner Appointed’.
Following the SBR period - whether a restructuring plan has been accepted or not - no additional words are required after the company name in any public document.