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What is the Small Business Restructuring Process?

The process will draw on key features of the US Chapter 11 bankruptcy process allowing small businesses to restructure their debts while remaining in control of their business.

The current “one size fits all” approach of Voluntary Administration is often criticized for being too costly for small business, and it can be too daunting for small business owners to hand over control of their business. The new process aims to fix those criticisms.

What does the Small Business Restructuring Process look like?

An insolvent small business would have 20 days to come up with a restructuring plan, and creditors would have to vote on whether to accept it within 15 days after that. If creditors don’t accept the deal the company can choose to proceed into a new streamlined liquidation process, or Voluntary Administration.

Who can use the Small Business Restructuring Process?

The process is accessible to incorporated businesses with liabilities of less than $1 million. To be able to propose a deal the business must have paid all employee entitlements.

Who controls the company during the Small Business Restructuring Process?

The company remains under the control of its directors during the Small Business Restructuring Process.

How does the Small Business Restructuring Process differ from a Voluntary Administration?

The Small Business Restructuring Process is designed to be shorter and less regulated than a Voluntary Administration. This is intended to keep the costs lower.

The company remains in the control of it’s directors during the Small Business Restructuring Process, whereas it transfers to the control of the Administrator in a Voluntary Administration

What is a Small Business Restructuring Practitioner?

A Small Business Restructuring Practitioner is a new tier of Insolvency Practitioner created to run the Small Business Restructuring Process.

The practitioner will: help determine if a company is eligible; support the company to develop a plan and review its financial affairs; certify the plan to creditors; and manage disbursements once the plan is in place.

Who can be a Small Business Restructuring Practitioner?

The qualifications required to register as a Small Business Restructuring Practitioner have not yet been defined. The government’s statement on the matter so far is: (the qualifications) will be in line with the streamlined requirements of the role.

A registered liquidator can also run a Small Business Restructuring Process.

What does the Small Business Restructuring Process cost?

The government has strongly encouraged a flat fee for the Small Business Restructuring Process, it may even end up being mandated.

It is too soon to speculate on actual costs, but given the Small Business Restructuring Process is designed to be significantly cheaper than a Voluntary Administration, we expect the cost to be well under $20,000.

When will the Small Business Restructuring Process become available?

The government is aiming to pass the legislation in time to make the Small Business Restructuring Process available by 1 January 2021.

They are anticipating there may be some delays in registering new practitioners and bringing them up to speed, so as a transitionary measure, an eligible small business will be able to declare its intention to access the simplified restructuring process to its creditors, including through ASIC’s published notices website.

Following the declaration, the existing temporary insolvency relief (relief from insolvent trading liability and around responding to statutory demands from creditors) would then apply to the business for a maximum period of 3 months, until they are able to access a small business restructuring practitioner or other insolvency practitioner. Relief would only apply to an individual business once a declaration is made. As a transitional measure, the ability to declare such an intention will be available until 31 March 2021.