Introduction
The small business restructure process is designed to provide viable businesses with the opportunity to reorganise their debts and operations to return to profitability. This process is particularly beneficial for businesses experiencing financial distress but still having the potential for recovery. The restructure process offers a streamlined and flexible alternative to traditional insolvency proceedings, aiming to preserve the business's core operations and protect jobs.
Eligibility Criteria
To be eligible for the small business restructure process, a business must meet specific criteria:
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Small Business Definition:
The business must qualify as a small business entity, which generally means it has an annual turnover of less than $10 million.
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Insolvency Status:
The business must be insolvent or likely to become insolvent in the near future. This means it cannot pay its debts as and when they fall due.
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Directors’ Resolution:
The company's directors must resolve that a restructuring plan would be in the best interests of the company and its creditors.
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No Previous Restructuring:
The business, its directors, or the corporate group must not have been involved in another small business restructuring or simplified liquidation process in the preceding seven years.
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Tax Lodgements:
The business must have its tax lodgements up to date. This includes Business Activity Statements (BAS) and other required tax lodgements.
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Employee Entitlements:
All employee entitlements, including superannuation, must be paid and up to date.
The Restructure Process
The small business restructure process involves several key steps:
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Appointment of a Restructuring Practitioner:
The directors appoint a qualified restructuring practitioner to oversee the process. This practitioner will help develop and implement a restructuring plan.
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Preparation of Restructuring Plan:
The business, with the assistance of the restructuring practitioner, prepares a restructuring plan outlining how it intends to deal with its debts. The plan must include details of how the business will return to viability and how creditors will be repaid.
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Proposal to Creditors:
The restructuring plan is proposed to creditors, who then have 15 business days to consider and vote on the plan. For the plan to be accepted, it must receive the approval of more than 50% of the creditors in value.
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Implementation:
Once the plan is approved by creditors, it becomes binding on all parties. The business then works to implement the plan under the supervision of the restructuring practitioner.
Benefits of Restructuring
The small business restructure process offers several benefits:
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Flexibility:
The process provides a flexible framework that allows businesses to tailor their restructuring plans to their specific needs and circumstances.
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Control:
Unlike traditional insolvency proceedings where control is handed over to an external administrator, the business's directors retain control during the restructuring process.
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Cost-Effective:
The streamlined process is designed to be more cost-effective than traditional insolvency procedures, making it accessible for small businesses.
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Continuity:
By focusing on restructuring rather than liquidation, the process aims to preserve the business's operations and protect jobs.
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Creditor Returns:
Creditors may receive a better return under a restructuring plan compared to liquidation, as the business continues to operate and generate revenue.
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Reduced Stigma:
The restructuring process is less stigmatising than formal insolvency proceedings, helping businesses maintain relationships with customers and suppliers.
Conclusion
The small business restructure process provides an essential lifeline for businesses facing financial distress. By offering a flexible, cost-effective, and a controlled approach to debt restructuring, it helps businesses navigate challenging times, protect jobs, and potentially return to profitability. This process is a vital component of Australia's broader insolvency framework, supporting the resilience and sustainability of the small business sector.
