The benefits for business owners using the Small Business Restructure Process (SBRP) to keep a business going.

Many businesses face uncertainty with the Australian Taxation Office now taking measures to collect tax debts and make directors take responsibility for the debts of their companies. The ATO since last year has continued to increase their collection activity through the issuance of Director Penalty Notices and garnishee notices as a means to make the message clear, pay up.

For many businesses in Australia such as retail, lifestyle services or hospitality, the challenges of managing debt can be overwhelming especially when a payment plan is not possible. However, the introduction of the Small Business Restructuring Process (SBRP) offers a lifeline.

For a business to qualify here are some key factors:

• Total Debts are under $1M , excluding secured creditors
• Superannuation is paid up to date prior to appointment

You may ask what are the key benefits of utilising the SBRP?

1. Directors Maintain Control of the Business

One of the most significant advantages of the SBRP is that it allows business owners to retain control over their business operations during the restructuring process. Unlike traditional insolvency procedures such as a Voluntary Administration where control is handed over to administrators, the SBRP empowers directors to continue managing their business day-to-day. This continuity can be crucial for maintaining customer relationships and ensuring smooth operations especially with employees.

2. Fixed Cost-Effectiveness

The SBRP is designed to be more cost-effective compared to other insolvency processes. The costs associated with restructuring are fixed, providing transparency and predictability for business owners. This is particularly beneficial for small to medium businesses that may already be operating on tight margins. Comparatively an average cost of an SBR is $20,000 compared to a Voluntary Administration starting at $60,000 plus ongoing costs

3. Protection from Creditors

During the restructuring process, creditors are prohibited from taking action against the company to recover debts. This moratorium provides much-needed breathing space for businesses to reorganise their finances without the immediate threat of legal action or asset seizure. When it comes to secured lenders for plant and equipment most businesses in an SBRP will continue to maintain payments against these assets.

It is also important to note that a secured creditor debt and personal guaranteed liabilities wont form part of the SBRP. Directors and Guarantors will need to deal with these secured or guaranteed debts post SBRP.

4. Simplified Process

The SBRP offers a simplified and streamlined approach to debt restructuring. The process involves less detailed procedures and simpler restructuring plans, making it more accessible for small business owners who may not have extensive financial expertise.

5. Higher Success Rates to keep a business intact

Due to its debtor-in-possession model, where directors maintain control, the SBRP has shown higher success rates compared to traditional voluntary administration. This model aligns the interests of the business owners with the restructuring process, increasing the likelihood of a successful turnaround.

The most important considerations for an SBRP to be successful is taking into consideration the businesses past ATO compliance history, any directors loans outstanding are dealt with, the reality of the value of any fixed assets, collectability of debtors and that the cash flow projection is realistic to meet the SBRP plan. Some people may think that the SBRP can be used to gain a discount but in reality, it’s there for businesses that are genuinely struggling.

6. Legal Protections – Insolvent Trading

The SBRP provides directors with protection from personal liability for insolvent trading. This legal safeguard can be a significant relief for business owners, allowing them to focus on restructuring efforts without the fear of personal financial repercussions.

7. Flexibility and Adaptability

The modern age of business to adapt quickly to changing market conditions. The SBRP’s flexible approach allows businesses to tailor their restructuring plans to their specific needs and circumstances, ensuring a more effective and responsive solution.

Conclusion

For any businesses in Australia facing financial difficulties, the Small Business Restructuring Process offers a viable and beneficial option to manage and restructure debts. By maintaining control, reducing costs, and providing legal protections, the SBRP can help businesses navigate through challenging times and emerge stronger and more resilient.

Accountants do you have a client scenario?

If you have a client scenario or need guidance on the SBRP process my Sydney team of qualified Legal Practitioners & Attorneys have proven experience in guiding directors and managing the SBR process. All initial appointments are free consultation basis and we undertake a comprehensive review and ensure that the SBRP will be the fit to get a clients business back on track.

Is an SBR right for you ?

I have worked with many companies seeking a solution and undertake an SBR. However this is not a one size fits all approach. Should you require further information or have a client scenario as an accountant and need advice, reach out via [email protected]