Utilising Small Business Restructuring When In Financial Distress

Relevant For:

Small business company directors dealing with financial distress, when the business is close to insolvency.

Key Points:

• Small Business Restructuring (SBR) allows companies to manage debts while retaining control.
• SBR helps directors avoid personal liabilities under certain Director Penalty Notices (DPNs) provided the SBR process is started within 21 days of receiving a DPN.
• Eligible companies can restructure debts under $1 million over a maximum of three years.
• The process involves appointing a Restructuring Practitioner (RP), submitting a plan to creditors and creditors' approval.
• Once accepted, the RP manages payments, and businesses can continue trading.

Full Article:

For small businesses facing financial distress, Small Business Restructuring (SBR) offers a lifeline to restructure debts while maintaining control over operations, while also mitigating the risk of personal liability under Director Penalty Notices (DPNs).

As an alternative to voluntary administration or liquidation, the SBR regime provides a simplified, streamlined approach to help businesses regain solvency.

Key Features of the SBR Process:

The SBR regime allows businesses to create a Restructuring Plan to compromise debt obligations, typically through instalments, while protecting employees’ entitlements.

Crucially, business directors retain control throughout the process, allowing operations to continue under their control.

The restructuring period cannot exceed three years, after which the plan must be completed.

Mitigating Director Penalty Notices: Act Within 21 Days

Director Penalty Notices (DPNs) impose personal liability on directors for unpaid tax debts, including PAYG withholding and superannuation guarantee charges. If these obligations are not met, directors can be held personally accountable.

Engaging in the SBR process within 21 days of receiving a non-lockdown DPN can avoid personal liability. Upon entering the SBR process within the 21 day deadline, non-lockdown DPNs are remitted and cannot be reinstated, even if the restructuring plan is not accepted or terminated.

If,