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Despite being around since then, there remains uncertainty in the market about how the process works and who is eligible. Currently, SBRs continue to be a critical solution to avoiding liquidation and ensuring you can continue operating as a small business owner. The first step in the SBR process requires putting together a sufficient plan, which the ATO will deem successful or not.
According to the Review of Small Business Restructuring Process: 2022-24 Report by ASIC, uptake has increased and 87 per cent of plans pass the success stage. However, as financial pressure continues, the ATO is anticipating more interest compared to 12 months ago, which is slowly bringing the success rate down to 65-70 per cent. Due to this shift, obtaining specialist advice to identify any ATO focus points before starting an engagement is critical.
So, what are the common misconceptions when it comes to the SBR process, and how can restructuring practitioners help ensure your plan is accepted by the ATO?
Despite it being a common misconception that operations will shut down, the distressed business can continue to operate during an SBR process. The ATO has designed SBRs to allow continued trade while Directors, finance teams and restructuring specialists work together to reorganise debts. Restructuring specialists work behind the scenes to avoid any friction in day-to-day operations, all while trying to restructure debt to ensure the business can continue trading beyond distress.
When undertaking an SBR process, the business is generally separate to the Directors. Where the Directors have a personal guarantee for business debt, there is the potential for it to affect their personal credit rating. In the case of having personal guarantees, we recommend seeking professional advice to understand how this will be dealt with during the SBR process.
Unlike other formal insolvency options where control is taken away from the Directors, the SBR process has been designed to cause the least amount of disruption to the business as possible – a significant benefit of undertaking a SBR is that Directors remain in control and have oversight into how decisions are made portraying a clear message of business as usual.
Often, business owners and Directors reach out too late. However, the key message is it’s never too early to ask the question – even if it’s to gain reassurance that your business isn’t in distress. The SBR process is most effective when it’s addressed early.
There are a few considerations to understand before starting the SBR process. These include passing a resolution that the company is or likely to become insolvent and meeting eligibility criteria. That’s why it’s critical to reach out to a restructuring practitioner who can help you understand requirements and criteria.
If your business is showing signs of distress – such as poor cash flow, falling behind in compliance, excess stock or declining sales – please reach out to our experts below for a confidential discussion or to understand if you’d be eligible for an SBR.
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It is important for business owners facing financial distress to understand all the options available to them. Small Business Restructuring (SBR) offers a pathway for small and medium sized Australian companies experiencing financial pressure to deal with unmanageable debt, reset operations, and continue trading through and beyond difficult times. SBRs are also a cost-effective solution to save a business compared to a liquidation shut down.
In the latest episode of Beyond the Numbers with Grant Thornton, Financial Advisory Partners John McInerney and Cameron Crichton discuss the current economic climate, what SBRs are, eligibility criteria, and how businesses have successfully turned around using this regime.
