What are the new reforms?

The government has made changes to our insolvency framework to help more small business restructure and survive the economic impact of Covid-19.

Where restructuring is not possible, business will be able to wind up faster, enabling greater returns for creditors and employees.

Two new processes became available for small businesses from 1 January 2021:

• a small business restructuring plan.
• a simplified liquidation framework.

In this article we explore the two new processes in more detail.

What are the eligibility criteria for the new small business restructuring process?

• Must be an incorporated business (not a sole trader).
• Liabilities of less than $1million.
• Must have paid all entitlements of its employees that are due and payable (including superannuation) and have their tax lodgments up to date.

What are the main elements of the new small business restructuring process?

• The company’s owners remain in control of the business and it can continue to trade in the ordinary course.
• A Small Business Restructuring Practitioner (SBRP), being a registered liquidator, is appointed by the company to consult on the restructuring process and its execution.
• Once the process starts, certain protections, similar to voluntary administration, apply.
• The company’s owners with the help of the SBRP have 20 business days to develop a plan to restructure the company’s debts which is then provided to creditors.
• Creditors, excluding related party creditors, have 15 business days to vote on the plan.
• The plan is approved if 50% of creditors by value vote in favour of the plan.
• If the plan is approved the business continues and the SBRP oversees the plan.
• If the plan is not approved, then the company’s owners may commence a voluntary administration or the simplified liquidation process.

What are the main elements of the simplified liquidation process?

• The liquidator’s regulatory obligations will be simplified to reduce cost and thus increase return to stakeholders.
• The situations whereby a liquidator can recover unfair preference payments from creditors, excluding related party creditors, are limited.
• The proof of debt and dividend process has been streamlined with the increased use of digital technology.

How can Charles & Co. help you?

Our Restructuring Advisory Team is well positioned to help businesses in a range of challenging and distressed situations. We encourage anyone experiencing financial and/or operational distress to contact us to discuss your restructuring options.