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KP Carmody & Co

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Small Business Restructuring Process

PUBLISHED FEBRUARY 2021

What is the Small Business Restructuring Process (SBR)?

On 1 January 2021 some of the most significant changes to insolvency law in three decades were introduced following amendments to the Corporations Act.

The new laws allow small businesses the flexibility to restructure their debts whilst allowing directors to remain in control of the business.  The new laws also provide for a new simplified liquidation process.

Who is Eligible?

To be eligible for the restructuring process, the total liabilities of the company must not exceed $1 million. This includes secured debts and related party debts, but excludes employee entitlements.

In addition, the company must not have been under restructuring or been subject of the simplified liquidation process within the preceding seven (7) years and a director of the company or a former director of the company has not been a director of another company that has been under restructuring or subject to simplified liquidation process within the preceding seven (7) years.

How does the Process Commence?

Before director(s) consider that a restructuring plan is to be proposed to creditors, the company will have or substantially complied with the requirements to have:

                       – Paid entitlements of employees that are due and payable; and

                       – Given all returns, notices, statements, applications and other documents as required by taxation laws.

Directors of a company that is eligible for the SBR process would pass a resolution to the fact that the company is insolvent or is likely to become insolvent at some future time and that a small business restructuring practitioner (RP) should be appointed. The directors then appoint the practitioner.  It is important to note that only a person registered with ASIC as a Registered Liquidator may act as a RP of a company or for a restructuring plan.

RP appointment cannot be revoked or removed/changed by creditors.

Effect on Creditors

Once a RP is appointed; creditors:

                      – Cannot begin, continue or enforce claims against company;

                      – Court action is adjourned unless deemed in creditors’ interests to wind up company;

                      – Cannot exercise property rights without consent of RP;

                      – Cannot enforce personal guarantees during proposal period.

 

 

The advice in this article is general in nature and you should consult your solicitor for specific advice.