Small business restructuring is coming and it's good news for small business
Treasury released draft legislation for public comment that describes a small
business restructuring procedure.
The draft legislation can be found at https://treasury.gov.au/consultation/c2020-118203
If passed by Parliament, the restructuring procedure will come into force on 1 January 2021.
The intent of the legislation is to allow directors to remain in control of their company’s business whilst they put a deal to unsecured creditors to compromise company debts to enable a return to solvency.
To be eligible for a small business restructuring, companies will need to meet a tight qualifying criteria. Initial indications are that the company will need to have less than $1 million in debt, tax lodgements up-to-date and employee entitlements paid. This criteria will eliminate many small businesses who have not been proactively managing their affairs over the last nine or so months.
We think that many of the features of the draft legislation indicate that it will in practice be carried out like a light touch voluntary administration.
A significant criteria, that we encourage all accountants to talk to their clients about, is to have tax lodgements up-to-date and we consider that this is a good idea.
By engaging with the restructuring practitioner early, directors will be able to explore restructuring options that could improve the prospects of their business operations continuing once the Government’s stimulus regime is withdrawn.
We remain cautious that the practical aspects of Directors managing their businesses whilst implementing business transformation and promoting a debt compromise will be a challenge for Directors to manage. This places great importance on the quality of the adviser they select to assist them through the process.
Directors should contact us to obtain more information on this development that will help many businesses, struggling with the effects of the current recession, to get in front of their obligations and return to viability.