Recent years have been difficult for small businesses in Australia. The pandemic, inflation, labour shortages, and global conflict have contributed to operational challenges and broader economic difficulties.
To help small businesses through difficult trading periods, the Australian Government implemented insolvency reforms with the Small Business Restructuring Plan (SBRP).
The SBRP provides a simplified process for struggling small businesses to negotiate with creditors, including the Australian Taxation Office (ATO), to restructure their debt while continuing to trade and operate business as usual.
The goal of an SBRP is to give business owners the opportunity to ‘reset’ the business, resolve its historical financial debts and liabilities, retain its staff, and refocus the business on the future.
What are the steps in a Small Business Restructuring Plan (SBRP)?
There are a few key steps business owners need to take for a Small Business Restructuring Plan (SBRP).
It is designed for small business owners, and the process requires the support of an external tax accounting professional to help as an independent guide throughout the process.
Step 1: Eligibility
The first step is to work out if your business qualifies.
In summary, your business must meet the following criteria for a Small Business Restructuring Plan (SBRP):
- Be a small business facing insolvency
- Be an incorporated company
- Not already be party to insolvency proceedings, such as a liquidation or voluntary administration (VA)
- Have total liabilities no larger than $1 million ($1,000,000) including related party loans and secured bank loans
- Be up to date on employee entitlements such as wages and superannuation
- All outstanding tax (ATO) lodgements must be up to date.
It is also highly advisable to be up to date with the current period liabilities such as BAS (Business Activity Statements) and IAS (Instalment Activity Statements) to ensure an accurate view of the tax position. This enables you (and your external tax professional) to develop a clear restructuring plan that is relevant and achievable for the future success of the small business.
Step 2: Appoint a Small Business Restructuring Practitioner
Once you have determined eligibility, the company formally appoints an external administrator (Small Business Restructuring Practitioner or SBRP Practitioner).
The SBRP Practitioner’s role is to review the company and make a recommendation on whether an SBRP is in the best interest of the company and its creditors.
ASIC and the company’s creditors must be notified following the appointment.
Once appointment has been made, unsecured creditors are legally prohibited from taking action against the small business, including the enforcement of personal guarantees.
Step 3: Drafting a Small Business Restructuring Plan
The small business (along with the external tax accountant) have 20 business days to develop a documented plan to restructure the company’s debts. The plan includes a financial forecast (financial model) and business plan which will be monitored by the SBRP Practitioner if successfully approved.
During this period, the company continues operating as normal (business as usual).
A Small Business Restructuring Plan (SBRP) will typically include a payment plan involving periodic (typically monthly) payment to creditors for a period of time up to three (3) years and must:
- Provide remuneration to the SBRP Practitioner
- Identify the assets of the company and how they we will factor into the company’s dealings
- Be in the approve SBRP form
- State the date on which the proposal was executed
ASIC must be notified within 5 business days of the proposal’s execution.
Step 4: Presenting the Proposal to Creditors
The SBRP Practitioner must then provide the proposal to all creditors as soon as the plan has been finalised.
Before the proposal can be sent to creditors, the Practitioner and the Company must ensure that:
- All employee entitlements including superannuation have been paid; and
- All tax lodgement obligations are up to date
Step 5: Creditors respond to the Proposal
Once creditors have been provided with the proposal, they have 15 business days to accept or reject the plan.
Creditors’ voting power is assessed on the dollar value they are owed, and this voting power (amount) is stipulated in the proposal.
If a specific creditor disagrees with the recorded amount of their claim, they must respond to the SBRP Practitioner with evidence of their claim amount.
What are the possible outcomes?
- If the proposal is rejected by a majority of creditors in value, the SBRP process is deemed to have finished and the company returns to trading as normal with its original debt balances unchanged.
- If the proposal is accepted by a majority of creditors in value, it is approved and all creditors are bound to the terms. The business will continue to trade as normal while it adheres to the SBRP payment terms.
The SBRP Practitioner will monitor the proposal (SBR plan duration) and ensure that the company takes measures to ensure viability and maintain its obligations according to the plan.
In a successful SBRP, the process ends once the company’s obligations as set out in the SBRP have been met.
Seeking expert guidance for your Small Business Restructuring Plan? Connect with our team at Blackwattle Tax.
At Blackwattle Tax, we’re your trusted outsourced accounting team. Our experienced professionals–from chartered accountants to registered tax agents–are ready to guide you through the cost-effective and straightforward process of implementing an SBRP, providing a solution tailored to your small business’ financial distress and tax debt challenges.
At Blackwattle Tax, we go beyond mere assistance; we craft personalised business strategies. With a proven track record spanning diverse sectors, Blackwattle Tax empowers clients with informed decisions for the best financial and tax results.
Schedule a FREE 30-minute consultation today to discover how we can enhance your tax planning and investment decisions.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
