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Simplified Debt Restructuring: a Factsheet for Small Business

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Simplified Debt Restructuring: a Factsheet for Small Business Simplified debt restructuring: a factsheet for small business The Government has made changes to Australia’s insolvency framework to better serve small businesses, their creditors and their employees. As part of these changes, the Government has introduced a new, simplified debt restructuring process for eligible small businesses from 1 January 2021. The process allows financially distressed small businesses to access a single, streamlined process to restructure their debts, while allowing the owners to remain in control of their business. This will support more small businesses to survive, meaning better outcomes for businesses, creditors, employees and the economy. Accessing the simplified debt The plan is accompanied by a restructuring proposal statement, which includes a schedule restructuring process setting out the company’s creditors, and the To be eligible to access this new process your amount they are owed by the company. company must: • be incorporated under the Corporations Act; Giving you the time you need • have total liabilities which do not exceed The Government recognises you may $1 million on the day the company enters need some time to find a small business the process. This excludes employee restructuring practitioner. That is why the entitlements; Government has extended the temporary • resolve that it is insolvent or likely to become insolvency relief (including relief from liability insolvent at some future time and that a small for trading while insolvent) for up to three business restructuring practitioner should be months. That gives you up to an extra three appointed; and months to access a practitioner from the • appoint a small business restructuring day you declare your intention to access the practitioner to oversee the restructuring restructuring process. process, including working with you to To access this relief, you can declare your develop your debt restructuring plan and intention to access the restructuring process restructuring proposal statement. by publishing the declaration on the published A list of restructuring practitioners that can notices website from 1 January 2021. Your undertake this work is available on ASIC’s company’s period of temporary restructuring website. relief begins on the day the declaration is published. The debt restructuring plan You also need to notify ASIC within 5 business days that you’ve made this declaration. The The debt restructuring plan sets out how a form for doing this is available on the ASIC company’s creditors would be repaid if the plan website from 1 January 2021. were made. For example, the plan could specify how creditors will be repaid as a proportion of the debt owing to them, or what ‘cents in the dollar’ they will receive. Simplified debt restructuring: a factsheet for small business The ability to declare your intention to access • satisfying a debt or claim that arises the restructuring process is available until before restructuring begins (that is, that 31 March 2021. would otherwise be dealt with under the restructuring plan); Staying in control of • the transfer or sale of the whole or a part of the business during the the business; and restructure • the payment of a dividend. If a transaction is outside the ordinary course Once you enter the process: of business, the restructuring practitioner must • the company stays in control of the process, approve the transaction. and may undertake transactions that are in the ordinary course of business; What do I need to do before putting a • the company develops a debt restructuring restructuring plan to my creditors? plan and a restructuring proposal statement Before you can put a plan to your creditors, which is put to creditors for a vote; and your company must be in substantial • the company is assisted in this process by its compliance with the following requirements: small business restructuring practitioner. • Employee entitlements which are due and Frequently asked questions payable (that is, those which are outstanding and must be paid) have been paid. How do I know if my company This excludes leave and other entitlements is insolvent? that are not currently due to be paid. • Tax lodgments are up to date. That means A company is insolvent when it is not able to that all relevant tax returns and activity pay all the company’s debts when they become statements are lodged with the ATO. payable. Tax debts do not need to be paid for a plan Warning signs that a company is insolvent to be put to creditors. include accruing losses, cashflow difficulties, overdue taxes and lodgments, legal issues, and What debts are included in the plan? difficulty gaining access to new credit. All unsecured debts which were incurred prior If you are unsure of whether your company is to the company entering restructuring are insolvent, you may wish to seek advice from an included in the restructuring plan. accountant. • The exception is employee entitlements (including those not yet payable, like leave What does it mean to trade ‘in the or redundancy entitlements), which are not ordinary course of business’? included in the plan. A company may continue to trade in line with its Debts incurred after the company enters normal, day-to-day operations. restructuring are not part of the plan and must be paid off outside of the plan. Certain transactions are deemed to be outside the ordinary course of business. These are: 2 Simplified debt restructuring: a factsheet for small business How long does the restructuring Once a plan is put to creditors, they may vote to process take? accept or reject the plan. They have 15 business days to vote to accept or reject the plan. The The company must put a restructuring plan restructuring practitioner oversees the voting to its creditors within 20 business days of process. entering the process. The company’s small business restructuring practitioner can extend During this ‘proposal period’, creditors this period by up to 10 business days where an can seek to vary the debt the restructuring extension is reasonable in the circumstances. statement says they are owed if they believe it is not accurately reflected in the restructuring Once a plan is put to creditors, they have proposal statement. 15 business days to vote to accept or reject the plan. A plan is accepted if more than 50 percent of the creditors by value that vote, vote to accept What action can creditors take during the plan. To ensure integrity, related party this period? creditors (that is those linked to the company, its directors or its shareholders) are not entitled When a company enters into restructuring, a to vote on a restructuring plan. moratorium is applied on unsecured creditor claims and some secured creditor claims. This What happens once a plan is made? means: • unsecured creditors cannot begin, continue or Once a plan is made, payments must be enforce their claims; disbursed to a company’s creditors in accordance with the terms set out in the plan. • owners of property (other than perishable property) used or occupied by the company, All admissible debts and claims rank equally or people who lease such property to the upon repayment of the plan. That means that company, cannot recover their property; all creditors are paid the same ‘cents in the • secured creditors cannot enforce their dollar’ and all are paid at the same time. security interest in the company’s assets in When a company pays off its obligations under some circumstances; the restructuring plan, it is released from all • a creditor holding a personal guarantee from debts or claims that were admissible under the the company’s director/s or their relatives plan. cannot act under the personal guarantee A company ‘exits’ a plan if, for example, it without the court’s consent; and fails to make payments under the plan. If this Ipso facto clauses (which are triggered during happens before its obligations are paid off, insolvency-related events) are stayed for some it remains liable for the original debt owed contracts. prior to the plan commencing, minus any repayments that occurred under the plan. How do creditors vote on a debt restructuring plan? What happens if the restructuring plan is not accepted by creditors? The restructuring practitioner provides creditors with the restructuring proposal The plan must be supported by more than statement and the restructuring plan. 50 percent of the creditors by value that vote. 3 Simplified debt restructuring: a factsheet for small business If the restructuring plan is not accepted, the What qualifications do small business restructuring process ends. restructuring practitioners have? You remain in control of the company but Small business restructuring practitioners must creditors are no longer prevented from be Registered Liquidators. They must possess enforcing their rights (see ‘what action can suitable experience, knowledge and abilities, creditors take?’ above) and you are no longer and have their registration granted by an protected from liability for insolvent trading. independent committee convened by ASIC. You may wish to consider placing the company A new classification of Registered Liquidator into liquidation. The Government’s reforms can take on the role of restructuring include a new simplified liquidation process practitioner only. They are required to which makes the liquidation process faster and be recognised accountants who have cheaper. Further information on liquidation is demonstrated the capacity to perform the available on the ASIC website and your small functions and duties of the role. business restructuring practitioner may also be Businesses should only deal with a practitioner able to provide information. who is registered. What is the role of the small business How will I know if a small business restructuring practitioner? restructuring practitioner is registered? The small business restructuring practitioner The ASIC website maintains a list of Registered oversees the debt restructuring but the Liquidators, including those who can only take company’s directors remain in control of the the work of a small business restructuring business.
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