Small Business Restructurings are Finally Taking Off

Now that the ATO has resumed chasing debts we are seeing an increase in queries about the Small Business Restructuring process.

Small Business Restructuring is the new process introduced in January 2021 designed to be a cheaper alternative to Voluntary Administration more suitable to a small business. Based on a Debtor in Possession model similar to Chapter 11 in the US, it allows the company to continue trading whilst forming a plan to put to the company’s creditors. There is more information on the process at our sister site, Restructuring Works.

You’re probably aware that as a part of the ATOs response to the COVID pandemic, very few Director Penalty Notices were sent in the years 2020 and 2021. The ATO signalled their intention to resume debt collection in March 2022 when they issued thousands of Director Penalty Notice warning letters. Actual DPNs were not far behind. When we started getting calls from directors who received the first wave of DPNs in 2022 they were all sent to long dead companies that we couldn’t do a lot for.

But in the last couple of months, we have noticed more DPNs being issued to trading companies. Small Business Restructuring is a great fit in these situations because it deals with the DPN whilst the company keeps trading.

Australia wide insolvency statistics suggest we’re not alone. Of the 119 total SBR appointments since the law was introduced in January 2021, 72 of them were from the last 4 months. There were more SBRs in August 2022 (26) than there were in the first 10 months after the legislation was introduced combined (22).