Revive Financial

Benefits of the New Small Business Restructuring Process (& How to Prepare)

Written by Revive Financial | Dec 14, 2020 1:32:02 AM

Are you or a client still struggling with ATO and other debt accrued during COVID-19? If so, the good news is extended help is here.

As part of the Government's COVID business recovery plan, a new small business restructuring process was released in January of 2021, and now’s the time to determine your suitability and gain access to its benefits

Here we take a look at the benefits of the small business restructuring process, who can take advantage of it, and the steps you can take right now.

Benefits of the Small Business Restructuring Process

The new small business restructuring process is designed to help business owners financially affected by COVID reduce business debt over an extended timeframe – and, ultimately, pull themselves out of crisis.

Part of reforms that Treasurer Josh Frydenberg has labelled “the most significant changes to Australia’s insolvency framework in 30 years,” the process allows business owners to remain in control and avoid insolvent trading liability as they attempt to restructure their business and pay off their debts.

The process is simpler and lower-cost than traditional formal insolvency appointments and has been described as a hybrid between voluntary administration and safe harbour. Unlike voluntary administration, directors retain control of their business.

The process begins with the appointment of a small business restructuring practitioner (SBRP). They administer the process and help point businesses in the right direction.

In addition to the small business restructuring process, the insolvency reforms also include a new streamlined liquidation process for when a business restructuring plan is unsuccessful.

By simplifying the process, these new reforms also make life a lot easier for those involved in administering the process. It also gives suppliers, banks, employees and other stakeholders, confidence that you’re taking steps to proactively deal with your business’s financial difficulties.

Ultimately, it benefits the Australian economy by helping its backbone.

Who Can Take Advantage of Small Business Restructuring?

The new small business restructuring process is designed to benefit any small business facing financial difficulties that fits the eligibility criteria – and is deemed viable.

As outlined in the regulations, to be eligible, a small business must:

  • Be an incorporated company (Pty Ltd entity)
  • Have less than $1 million in liabilities including secured and related-party debt (on the day the small business restructuring appointment begins)
  • Not already be subject to an insolvency administration

While not essential at this stage, to avoid defaulting during the restructuring process, the company must be substantially complying with obligations to lodge returns with the ATO. Employee entitlements, including superannuation, must also be paid.

Currently, the small businesses we’re seeing that are struggling the most are those in the hospitality, retail, and building and construction industries. They are, therefore, the ones most likely to access restructuring. However, the process is available to businesses in any sector.

Importantly, business owners must be committed to saving their business, understand the benefits of acting sooner rather than later, formally decide to enter the process and be willing to work with their small business restructuring practitioner to formulate a plan.

Steps You Can Take Before Engaging In The New Process

There are several things small businesses and their advisors can do right now to put themselves in the best position to benefit from the new process without delay.

Small Business Owners

  • Speak to your bank so you can pre-reserve cash to pay any suppliers cash on delivery (COD) if required
  • Lodge all outstanding ATO returns and pay all employee entitlements currently due, including superannuation
  • Ensure books and records are accurate and-up-to-date
  • Determine business viability – are you breaking even?
  • Look at your personal liability exposure to understand what creditor demands you may receive for debts not met in the plan
  • Prepare a business plan and draft restructuring plan
  • Pull together a stakeholder management plan, including a communication strategy to gain support for the restructuring plan
  • Speak to your accountant or advisor

Accountants & Advisors

  • Advise clients on the above
  • Identify any clients who are in financial distress or at risk of being
  • Inform said clients about the new small business restructuring process reforms and how the process works
  • Stay up to date with the latest on the reforms – check our blog

Take Advantage of the Small Business Restructuring Process

The small business restructuring process benefits both small businesses and the Australian economy – while making the process easier for those who administer it.

By determining eligibility early, keeping your finances and planning sharp, and watching out for updates on the new reforms, you can access the small business restructuring process quickly and put yourself in the best position to avert crisis.

See if we can help with our Instant Online Assessment, or get in touch with our experienced team today on 1800 534 534 for a free, confidential consultation to find out if accessing the small business restructuring process is the right solution for your situation.