Understanding the Australian Small Business Restructure Legislation
In the ever-changing economic landscape, many businesses face financial challenges that can threaten their viability. Fortunately, the Australian Small Business Restructure Legislation, introduced in 2020, offers a lifeline to eligible businesses. This legislation aims to provide a more accessible path for small businesses to restructure their debts, helping them to survive and thrive despite economic adversity.
Who Can Benefit from the Restructure Legislation?
The Small Business Restructure Act is designed for small businesses with liabilities of less than $1 million. The following categories of businesses are eligible to take advantage of this legislation:
Small Business Owners: Those who are struggling to pay off debts but have a financially viable business can find a solution through this legislation. This support enables them to continue their operations while addressing their financial challenges.
Businesses Operating as either a Company or Trust: The legislation applies to entities structured as either a company or a trust with a corporate trustee. This inclusivity ensures that various business models can benefit from the support offered by the Act.
Franchise Owners: Franchisees facing financial strain often want to maintain their brand affiliation and business model. This legislation allows them to restructure their financial obligations while continuing to operate under their franchise agreements.
Lodgements & Employee Entitlements: To qualify, a business must have up-to-date lodgements with the ATO and no outstanding employee entitlements, including superannuation that has been reported. This requirement encourages businesses to stay compliant, fostering a healthier economic environment.
Benefits of the Restructure Legislation
- Retain Control: Unlike traditional insolvency processes, business owners remain in control of their operations throughout the restructuring process. This allows for continuity in management and decision-making.
- Streamlined Process: The legislation provides a quicker and more efficient way to restructure compared to formal insolvency proceedings, which can be lengthy and complex.
- Maintain Licences: Unlike insolvency, many professional licences like QBCC may not be compromised by the small business restructure process.
- Debt Relief: By developing a restructuring plan, businesses can negotiate terms with creditors, potentially reducing the overall debt burden.
- Creditor Protection: Once the restructuring process is initiated, creditors cannot take action against the business without court approval, allowing the business time to stabilize.
- Preservation of Jobs: By facilitating a successful restructure, the legislation helps preserve jobs, benefiting both employees and the local economy.
- Improved Cash Flow: Through the negotiation of payment terms, businesses may improve their cash flow, providing a clearer path to recovery.
Business Restructure Case Study
John owns a construction business that is operating in a company. The company had been trading successfully for many years and was compliant with all ATO lodgements and payments. This was until a major construction company whom John sourced many projects from entered liquidation. This left John with an unexpected drop in sales, and in return left his unable to pay some of his creditors. Over the next year, the companies ATO debt snowballed to $600k.
The director John, decided to act and with the assistance of a professional practitioner the company commenced the small business restructure system. After a few months of negotiations, the final agreement was approved, with creditors to receive 30 cents on the dollar and a payment arrangement was put in place to have this paid of over an appropriate time frame.
Most importantly, the company is back to a position of solvency, there were no changes made to the ownership or operations of the business and is continuing to operate successfully due to the SBR process.
How can Walsh Accountants help?
The Australian Small Business Restructure Legislation offers a valuable solution for small businesses grappling with financial challenges. By allowing owners to maintain control while restructuring their debts, it paves the way for recovery and growth. As a small business owner, partnering with Walsh Accountants can enhance your chances of successfully navigating this process, ultimately leading to a more resilient business.
At Walsh Accountants, we understand the complexities of navigating financial challenges and the opportunities presented by the Small Business Restructure Legislation. Our team of experienced professionals is dedicated to providing invaluable support to small business owners seeking to restructure their debts. We will guide you through the process of developing a comprehensive restructuring plan tailored to your unique needs.
Article By Kayleigh Karfs
Kayleigh Karfs ā Assistant Manager
There are so many different circumstances that a client may find themselves in throughout the business life cycle and it is my job as an accountant to help the client navigate these challenges, and confidently prepare for the future. One of these challenges can include navigating the business restructure process. If you feel your business might benefit from a restructure, donāt hesitate to reach out to Walsh Accountants.
