What does the Small Business Restructuring Process mean for businesses and suppliers?

The Treasurer Josh Frydenberg has announced these as the most significant insolvency reform in 30 years to support small businesses navigate the coronavirus-induced recession. On 10 December, these changes were passed in both Houses.

The Small Business Restructuring Process is designed to assist small businesses with liabilities under $1 million (representing approximately 76% of businesses currently subject to insolvencies) restore operational liquidity by severing the financial burden of legacy debts through a formal debt compromise with creditors.  In a first for Australian corporate restructuring, the reforms allows for Company Directors to remain in control of (‘debtor in possession’) and continue to trade their business during the restructuring period.

While the reforms may be welcome relief for companies with unmanageable legacy debts, the debtor in possession model itself and the introduction of a suite of moratoriums on enforcement activity present an increased risk to those supplying on credit to small businesses.

Qualifying for the SBRP

Companies wishing to utilise this process must be able to demonstrate the following:

• less than $1 million in liabilities (excluding liabilities to employees of the Company);
• all outstanding employee entitlements, including superannuation, must have been paid (nb. this does not include entitlements not yet due for payment, such as annual or long service leave); and
• all tax lodgements for the company must be up to date.

To learn more about the specifics of the new process and your eligibility please click here.

Directors of qualifying small businesses should be aware that while on its face the SBRP may appear an attractive proposition, failure to properly consider key stakeholder concerns (funding continued supply, lender support and recapitalisation sources) prior to formally entering into a SBRP could result in business failure rather than rescue.

As Government support and stimulus measures are withdrawn over the coming months, suppliers should be conscious of the changing credit risk profile of its customers and potential erosion of recovery prospects under the SBRP reforms.

Key to optimising outcomes is early intervention. For more information on the SBRP please see:

• Factsheet: Insolvency reforms to support small business (Australian Government)
• How to access extensions to temporary restructuring relief (ASIC)
• Information about entering Restructuring and the Restructuring Plan (ASIC)
• Information on Small Business Restructures (ARITA)

To learn more about the SBRP or to discuss your specific circumstances, please reach out to your local partner or the contacts below.