Understanding the new Small Business Restructuring Process

By Domenic Kyriacou
29 04 2021

We are all aware of the vast impact COVID-19 has had on Australia’s health system and economy. The response from both the Federal and State government to avert the crisis was swift, with a number of initiatives and packages being enacted, these include but are not limited to:

  • JobKeeper;
  • JobSeeker;
  • Temporary insolvency relief measures; and
  • Coronavirus Supplement.

A more recent response from the Australian Government is the fast-tracked implementation of The Small Business Restructuring Process (SBR Process) which came into effect from 1 January 2021. The SBR Process has been introduced to allow financially distressed, but commercially viable businesses, the opportunity to restructure their debts whilst continuing to trade with the help of a Small Business Restructuring Practitioner. For small businesses facing financial difficulties, the SBR Process could provide a lifeline, acting as a life jacket for small businesses following the end of the temporary insolvency relief measures which expired on 31 December 2020 and the impending cut to the JobKeeper payments at the end of March 2021.

Why was the Small Business Restructure Process (SBR Process) Introduced and What Makes it Unique? 

The SBR Process is intended to reduce the costs and complexity of the external administration process.

Unlike your typical external administration appointments, such as Voluntary Administrations and Liquidations, the SBR Process is considered a debtor in possession model. This means the Directors of the company retain control of their business and can enter into transactions in the ordinary course of business. 

Most importantly it aims to minimise the chance of small businesses being wound up.

How Does the SBR Process Work? 
  1. The company’s Directors must agree that the company is insolvent or will soon be insolvent.
  2. The company’s Directors must appoint a Small Business Restructuring Practitioner (SBRP).
  3. The company has 20 business days to work with the SBRP to prepare and issue a restructuring plan to the company’s creditors.
  4. Creditors have 15 business days to approve the proposed restructuring plan. If the majority of creditors vote in favour of the proposal, the plan will be implemented. However, if creditors reject the proposal, control of the company is retained by the directors and they may consider other options, including placing the company into Voluntary Administration or Liquidation.

To be eligible for the SBR Process, a business must meet the following requirements: 

  • The business must be incorporated and have liabilities of less than $1 million. 
  • The business is currently insolvent or will become insolvent. 
  • The business must have paid all employee entitlements due and lodged all taxation returns required under taxation laws. 
  • The company’s Directors must not have been engaged in the SBR for another company within seven years.
We Can Help

Temporary insolvency relief measures expired on 31 December 2020 and with Job Keeper and Job Seeker not far behind, it is a prudent time for struggling small businesses to assess whether they qualify for the SBR Process. If you require assistance in understanding the SBR Process or would like to discuss any concerns further, please contact our Business Recovery team.