small business restructures
explained

You

• Trade your business in a company or trust with a company as trustee.

• The company currently faces ATO or other debts it cannot pay in full.   Aim to help write off a significant portion of these debts, reducing the remaining balance to an affordable level.

We

• Aim to help write off a significant portion of these debts, reducing the remaining balance to an affordable level.

• The remaining balance can be paid over a period of typically 2 years, or any shorter time.

• Aim to balance the debt reduction and cashflow obligations to restore financial stability.

What is a Small Business Restructure and why do one?

• An SBR is an insolvent company restructuring process under the Corporations Act to assist companies with ATO and other debts that can’t be paid in full.

• Introduced in January 2021 during the COVID-19 pandemic to provide a streamlined measure for viable companies to deal with accrued debts

• Debt reduction we typically see is 70% reduction after costs.

• Stop ATO/creditor action, reduce debts and allow time to pay the debt balance.

• Cashflow relief: 3-month payment holiday then either one-off, monthly instalments typically over two years, or a combination.

• It includes all unsecured creditors at the SBR start date, but often the major debt is owed to the ATO.

• Very high success rate, 91% ATO approval, Business Reset has 98+% approval.

Upcoming SBR Planning Session purpose & overview

Watching these videos is an important step for you in preparing for our meeting.

The purpose of the SBR Planning Session web meeting with us is to:

• Confirm your understanding of the SBR process and answer your questions.

• Confirm the eligibility criteria are met for the company to enter SBR.

• Gather key details on the company’s background and causes of debts.

• Profitability review to assess the profit and loss statement to confirm the business viability and ability to meet SBR payment

• Balance sheet analysis to understand the company’s assets and liabilities in for comparison of the SBR proposal vs a hypothetical liquidation.

• Calculate draft SBR plan estimating payments required and debt reduction.

• Confirm the prospects of success if the company proposes an SBR.

• Identify planning steps to prepare for an SBR.

• Review ATO compliance and related party loan accounts to identify any hurdles to a successful SBR and plan accordingly.

SBR Process - What SBR Aims to Achieve

• Save the company without altering its structure, focusing on debt restructuring.

• Support the director to operate business-as-usual with minimal disruption.

• Protection from creditors and no debt payments for about 3 months.

• Potentially reduce ATO and other included debts by approximately 70% after costs.

• Remaining 30% is paid as affordable SBR plan payments. These are one-off payment and/or monthly instalments, typically up to 2 years.

• No interest, SBR plan can be paid out early at any time.

SBR Process - Eligibility for SBR

• ATO Lodgements up-to-date: All activity statements (BAS & IAS) and tax returns which are due (not the current year) must be lodged

• Superannuation fully paid: for all employees, but excluding directors and their relatives.

• Debts less than $1 million: includes unsecured debts not paid on SBR start date. Not employee entitlements, or secured finance and loans.

SBR Process - Fast and Efficient

• Timeline: Typically a 9-week process from SBR Start Date:

• 6 week deadline to:

  • Lodge BAS and unpaid super guarantee lodgements with ATO

  • Pay employee super

  • Sign off SBR Plan, included creditors and director statement

  • SBR Practitioner investigates position and affairs, prepares and issues a report to creditors with the SBR Plan.

• 3 weeks for voting by email.

• Approval Requirement: SBR Plan is accepted if more than 50% of voting creditors by dollar value vote in favour.

Differences of SBR to other insolvency processes

• Directors control trading: Directors retain full control of trading throughout the process.*

• Company retains all assets: Unlike other insolvency appointments, the cash, receivables and other assets all remain with the company for its business operations, the SBR practitioner has no control.

• Lower fixed and % fee: Fixed fee for 9 weeks until vote accepted, then % fee for the SBR Plan.

• Lower publicity: Only included creditors are written to. Financiers are notified, but not employees, customers, and other trading partners.

*Limited restrictions on directors: During the 9-week SBR period, the only restrictions are that without SBR Practitioner consent, a director can’t: 1) pay creditor debts owed at SBR start date, 2) sell assets outside usual business, 3) sell all or part of the business.

SBR Process - All unsecured debts are captured:

• ATO debt is the problem, but all unsecured debts owed at SBR start date are included.

• Unsecured debts: suppliers, rent, credit cards, AMEX, unsecured loans e.g. Prospa, director/related loans

• Timing is important to minimise supplier impact. Often, a specific date is chosen when monthly supplier payments are made, reducing disruption to supplier relationships.

• For a critical supplier/creditor to not be included all invoices, even if not yet due, must be paid in full. That means all debts listed on balance sheet and aged payables at SBR Start Date will be included in SBR and be notified by SBR Practitioner.

Lodgements and impacts on ASIC record, Company and Personal Credit Files

• Notifications & lodgements:

  • Necessary documents are lodged with ASIC, which remain there forever, and are available for purchase.

  • ASIC published notices website: notices of SBR and SBR plan are noted there.

• Insolvency Process: The SBR is recorded against the company’s ASIC file, impacting the company’s credit file and possibly the director's personal credit file.

• Credit Reporting: Suppliers with credit reporting on the company will be notified. Bank loans typically remain unaffected, but non-bank lending facilities may be frozen.

• Minimal Disruption: Besides included creditors, the SBR’s impact on credit reports is minimal, aiming to reduce publicity and avoid disruption.

Key success factors for SBRs

• Main aim: To demonstrate to the ATO and other creditors, the business is viable, the directors are diligent business owners and the company genuinely can and intends to pay its SBR, ATO and other obligations in future.

• Director loans

• ATO lodgement & payment history

• Business viability: Is it sufficiently profitable

• Ways to address issues:

  • Increased return

  • Shorter payment terms

  • Up-front contribution on SBR acceptance

  • Contribution from director

  • Show business improvement measures

  • Provide sufficient explanation

  • Identify past events which led to the debt and are now resolved.

Director liability outside the SBR - Personal Guarantees & DPNs

• Starting point: Directors are not personally liable for their company’s debts

• Exceptions in an SBR for unsecured creditors:

  • Personal guarantees: After an SBR is accepted, claims against company are compromised, but not against director (eg unsecured loans, credit cards, some trades, leases).

  • Expired ATO director penalty notice (DPN): A DPN issued to the directors for BAS debts expires after 21 days, directors become liable for the debt.

  • Debts for BAS lodged over 3 months late: If the debt is unpaid before, or by the SBR, the ATO can issue a lockdown DPN any time in future.

• Steps for directors: Alternative arrangements, such as an instalment plan, may need to be negotiated for the balance of DPN liabilities and personal guarantees.

• Good news: No liquidator claims in SBRs, loan accounts, insolvent trading etc.

Preparing for your company’s SBR

• You now better understand:

  • Key benefits of an SBR for your company: 

    • significant potential debt reduction, 

    • flexible payment terms, and 

    • high success rates.

  • The SBR process and areas to consider and prepare for.

• Next steps to prepare for your SBR

Questions – email to us or ask in our forthcoming meeting.

Ensure you do the following, at least two business days before our meeting:

1. Grant Xero access (advisor + payroll) to [email protected].

2. Email ATO portal info:
   
   Lodgement & accounts dashboard screenshots and
   
   Integrated Client Account (BAS/IAS debt) for 5 years, exported to CSV

3. Complete the Director Statement Questionnaire
   
   Guidance on the above is in our email to you with the link to these videos.

Book a meeting: if you haven’t already, use the link in the email we sent you or click one of the following:

• SBR Planning Session with:

  • Jarvis Archer

  • Des Byron

  • Dan Dekleva

Thank you for completing the action items and taking the time to watch these videos. It is an investment of time that will be well worth it.

We'll see you in the upcoming SBR Planning Session.

The Business Reset Team

If you have any feedback on what it was like for you, going through the videos and info on this page, we'd love to hear from you.

Just drop us an email. All feedback is welcome!