The Australian Government introduced legislation that commenced on 1 January 2021 offering new avenues for small businesses facing insolvency (cannot pay their debts).

One of these new avenues is the small business restructuring reform. Under the reform, eligible business owners can work with a Small Business Restructuring Practitioner to implement a debt restructuring plan. The goal is to keep the company trading while resolving crippling debt. debt restructuring plan

The debt restructuring plan includes all current unsecured debt that your company is liable for (including shortfalls to partly secured creditors and participating secured creditor debts). It does not include employee payments (wages, superannuation, and so on), which is why these must be accounted for before the restructuring plan can commence.

If you incur new debt during the simplified debt restructuring process, this needs to be repaid outside of the restructuring plan.

As part of the terms of the plan, all creditors rank equally and are repaid at the same time. If the company cannot make its payments, the plan is exited and the practitioner will work with you to determine next steps.

When to engage a Small Business Restructuring Practitioner

Ideally, you should reach out to a restructuring specialist as soon as you become concerned about your company’s ability to stay afloat.​ When to engage a SBRP

The faster you start a conversation, the more options will be available to you. There is also a limited window to start the process before you could become personally liable for insolvent trading. 

A Small Business Restructuring Practitioner is essentially a registered liquidator. Some registered liquidators are only approved to act as a Small Business Restructuring Practitioner, however, RSM’s registered liquidators are also able to act in other capacities, such as a voluntary administrator or liquidator.

Working with a registered liquidator who is fully certified across the whole spectrum of restructuring and recovery gives you more choice in how you decide to move forward.

For example, a conversation with a fully registered liquidator may confirm that you are eligible for the Small Business Restructuring process. and therefore they would act as your Small Business Restructuring Practitioner.

However, you may decide together that the Small Business Restructuring process is not for you. In this case, you may ask them to act in the capacity of a voluntary administrator instead.

What a Small Business Restructuring Practitioner does

In the Small Business Restructuring process, the Small Business Restructuring Practitioner is your adviser.

They provide guidance as you:what does a SBRP do?

  • develop and propose a debt restructuring plan
  • develop and propose a restructuring proposal statement
  • circulate the plan and statement to creditors for approval
  • implement the approved plan while continuing to run your business
  • continue dealing with creditors throughout the process

You retain full control of the day-to-day affairs of your company and revert to your practitioner for support and (in some limited instances) approval for specific matters that are generally outside of the ordinary operation of your business. 

The main objective during the restructuring process is to return the company to solvency. The primary role of your practitioner is to:

  • guide you through the process
  • make certain limited declarations to creditors about the company’s ability to meet its obligations under the restructuring plan
  • consider creditor claims
  • manage payments to creditors based on the terms of the plan

This is different to voluntary administration, where your appointed voluntary administrator takes full control of your company’s affairs and deals with creditors on your behalf. While you generally still work in the company to manage day-to-day operations, the administrator is responsible for making financial and strategic decisions that are in the best interests of creditors.

In this capacity, a voluntary administrator is even liable for any debts they incur while they act in this role.

If the company is restructured through a Deed of Company Arrangement and the company returns to solvency, the voluntary administration ends and you reclaim control of the company to continue the momentum.

One key concern with the Small Business Restructuring process versus voluntary administration is that your practitioner is not liable for debts incurred while you trade on. Creditors know this – so while they may approve your restructuring plan, they may not be inclined to continue supplying your company with the goods or services you need to remain operational.

It’s important to consider this factor when discussing your options with a registered liquidator.

The cost to engage a Small Business Restructuring Practitioner debt restructuring plan cost

When you engage a Small Business Restructuring Practitioner, they must provide a flat fixed fee for their service which you agree on before the restructuring starts. The fee for administering the plan is then paid from the plan funds as an agreed percentage of the disbursements to creditors.

The practitioner’s level of involvement and responsibility is much less than in a voluntary administration, so the fees for service are also less. 

Contact a Small Business Restructuring Practitioner

Although it may feel daunting to have an open conversation about the health of your business, it’s important not to delay it. The events of 2020 have devastated both businesses that were profitable and unprofitable before COVID, so you are not alone. Something we often hear from business owners after engaging us is, “I wish I hadn’t waited so long!”.

If your Plan A (trying to sort out everything yourself and feeling constantly under stress) isn’t working, it’s time for Plan B: bringing in reinforcement from experts who have the financial and legal knowledge to help you navigate your situation with confidence.

RSM’s fully registered liquidators have been helping businesses get through tough times for over 30 years, and have a simple 4-step process to help you do the same:

  1. No cost, confidential initial meeting with you, the directors and business owners, and your advisers including your accountants and lawyers, to understand your challenges and objectives and map out high-level potential options for you.
  2. RSM are retained confidentially to undertake a review of your business and recommend the best option to meet your specific needs and objectives.  One of these may be the Small Business Restructuring regime.
  3. After the directors have agreed on their preferred option, RSM will assist you to plan for and commence the appointment.
  4. RSM is officially appointed to commence the restructure.

To start a conversation with a restructuring and recovery expert from RSM today, contact your local RSM office today.