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Small Business Restructuring Procedure Due to Commence on 1 January 2021

10th December, 2020

Legislation has now passed bringing into effect the Small Business Restructuring procedure due to commence on 1 January 2021.

How will the procedure benefit small business?

The procedure helps eligible small businesses cramdown on creditor claims and avoid winding up applications in order to propose a restructuring with creditors in a cost-effective manner and avoid the implications of ongoing insolvency.

Who can take advantage of small business restructuring?

The procedure is not available to all businesses. Eligible small businesses are those with debts of less than $1 million and by the time a restructuring plan is presented to creditors, will have all tax lodgements up-to-date and employee entitlements paid.

Who can conduct the process?

The process involves a registered liquidator, acting as a restructuring practitioner, and the company directors working in cooperation with each other to achieve the objectives of the procedure. The director remains in control of the company, and the restructuring practitioner’s role is to coordinate the communication with creditors, oversee aspects of the director’s conduct during the period of restructure, issue a certificate supporting the restructuring proposal presented by the directors and to receive and adjudicate on the votes of creditors. Should a plan be accepted by creditors, the restructuring practitioner will oversee the implementation of the plan and distribution of proceeds to creditors.

How will it work?

The key elements of the restructuring process are as follows:

  1.  before a company enters into a small business restructuring, the directors must agree a fee with the restructuring practitioner.
  2.  the directors resolve the need to enter into a restructuring and pass resolutions to that effect.
  3.  the directors develop a restructuring plan and provide the terms of it to the registered liquidator.
  4.  within 1 business day the restructuring practitioner gives notice of the appointment to creditors.
  5.  within 5 business days, the directors must declare their company’s eligibility for small business restructuring.
  6.  within 20 business days the company must give non-related creditors a copy of the plan and the standard terms applicable for a small business restructuring. At the same time the restructuring practitioner will issue a certificate verifying the company’s eligibility for small business restructuring and their view on whether the company is likely to be able to meet its obligations under the plan.
  7.  within 15 business days of the plan being given to creditors, creditors vote on plan acceptance and a plan is accepted if a majority in value of unrelated creditors accept the plan.
  8.  the plan is binding on creditors that have an admissible debt covered by the plan along with the company and the directors / officers. Secured creditors can stay outside of the plan but can also vote and be accepted as part of the plan.

Key risks and issues

Following entering into a small business restructuring, the directors are going to need to deal with a range of creditor rights and demands, particularly with respect to creditor claims arising from PPSR registrations, leasing companies and landlords at the same time as managing their businesses and developing a restructuring plan.

Directors will need to seek the advice of experienced registered liquidators to assist them with these challenges.

Heard Philips Lieberenz has taken an active involvement in the development of the legislation, associated regulations and rules and has the experience to assist directors through this new process.

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