Small Business Restructuring – More accessible than you may think!

Small business restructuring (SBR) was introduced during the pandemic to reduce the tidal wave of business failures anticipated from lockdown measures across the country. Unlike other restructuring solutions, with SBR control of the company remains with the director. It is not transferred to an insolvency practitioner, as with liquidation or voluntary administration. This gives SBR a bid tick for the director who wants their business to continue.

To access SBR a company must meet a number of criteria. One of them is that the company’s liabilities can be no more than $1 million (1).  Many consider this threshold to be too low; depending on the type of business, it does not take long to reach $1 million in debts.

The good news is that the $1 million requirement applies only to unsecured debts. Liabilities that are secured are excluded to the extent of the value of the underlying security. Two common types of secured liabilities come to mind: first, the bank loan that is secured through a general security agreement over the company’s assets and possibly also the director’s home by way of a mortgage. The value of the assets (assuming the bank enforced its security) would be subtracted from the loan and the balance remaining, if any, would be the portion considered relative to the $1 million cap.

The second common type of secured liability is asset backed loans used to purchase equipment. These are often secured as a purchase money security interest (PMSI) on the Personal Property Securities Register (PPSR). As with the bank loan, the realisable value of the financed asset is subtracted from the loan and the remainder is grouped with the company’s other unsecured debts for the $1 million threshold.

The treatment of secured liabilities means SBR is more accessible than you might have thought. Indeed, a company’s total debts could be significantly higher than $1 million, and yet it could qualify.

If you would like to discuss any aspects of the above article or your business’ situation generally, contact us for a free consultation.

(1) The other criteria are:
– ATO lodgements are up to date;
– employee entitlements, including superannuation, that are due are paid up; and
– neither the company nor its directors have utilised SBR or a simplified liquidation in the past 7 years.