The Small Business Restructure (SBR) process commenced on 1 January 2021 in response to the COVID-19 pandemic. The purpose of it was to provide a less complicated and cheaper alternative to other formal insolvency processes. The SBR process has similarities to the Voluntary Administration/Deed of Company Arrangement processes in that it provides directors and the company time to develop and propose a plan to creditors to pay off liabilities either in full or in part, within a period not exceeding 3 years.
Small Business Restructuring
To be eligible for a restructuring on the day on which the restructuring practitioner is appointed:
- Total liabilities of the company must not exceed $1 million;
- No person who is a director of the company, or who has been a director of the company within the 12 months before the appointment of the restructuring practitioner, has been a director of another company that has been under restructuring or subject to the simplified liquidation process within the period of the preceding seven years, unless they are exempt under the regulations; and
- The company must not have undergone restructuring or been the subject of a simplified liquidation process within the preceding seven years.
The SBR process is different to other formal insolvency processes in that it allows eligible companies to:
- Retain control of the business, property, and affairs of the company while it develops a plan to restructure the company’s affairs with the assistance of a restructuring practitioner
- Enter into a restructuring plan with creditors.
Unless extended, within 20 business days after a Restructuring Practitioner is appointed to a company, the company with the assistance of the restructuring practitioner develops a restructuring plan proposal.
Prior to a restructuring plan proposal being sent by the restructuring practitioner to creditors, the company must have (or have substantially complied with the requirement to have):
- Paid the entitlements of employees that are due and payable, and
- Given returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act).
Unless the two criteria above have been satisfied the company cannot propose a restructuring plan.
A decision about whether a restructuring plan should be accepted is made by affected creditors. The plan is only approved if it is supported by more than 50% in value of unrelated creditors. If approved, the directors remain in control of the business and the Restructuring Practitioner administers the plan and distributes monies to creditors.