Possible way out for small businesses struggling to survive

SME’s simplified debt restructuring process

Is your small business insolvent or at risk of insolvency: having cashflow difficulties and unable to pay its debts when they’re due.

Is your company incorporated under the Corporations Act? And are its total liabilities less than $1 million?

If you answered yes to all these questions, you may be able to keep your business alive.

How? By taking advantage of the federal government’s new, simplified debt restructuring process.

From 1 January 2021 to 31 March 2021, eligible companies can appoint a ‘small business restructuring practitioner’ to oversee the restructuring of the company’s debt.

This could help your company stay afloat while providing greater certainty to your creditors and employees.

The restructuring practitioner, who must be a registered liquidator, can work with you to develop your debt restructuring plan.

The plan would set out how your company’s creditors would be repaid. This could be as a proportion of the debt owing to them or the ‘cents in the dollar’ they’d receive, for example.

The plan would include all unsecured debts, except employee entitlements.

Though the practitioner oversees the restructuring process, you would remain in control of your company.

Not only that, you could continue trading ‘in the ordinary course of business’ – even if your company is insolvent.

Within 20 days of entering the process, you would have to put your debt restructuring plan (and a restructuring proposal statement) to your creditors for a vote.

It would have to be accepted by more than 50 per cent of the creditors by value that vote.

If your plan was accepted and your company paid off its obligations under the plan, it would be released from all debts or claims covered by the plan.

Your business would live to fight another day.

For more information, visit the Australian Government’s simplified debt restructuring web page.

If you’re unsure whether your company is insolvent or at risk of insolvency, contact Modoras for advice on 1300 888 803.

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