Just as small businesses emerged from two years disrupted by lockdowns and border closures, the march of Omicron across the Eastern States has been dealt a further blow leaving many struggling to manage inadequate staff, supply shortages and retreating customers. Unlike in previous COVID-affected years, Omicron’s defacto lockdown came with very little in the way of Government support, and many small and medium-sized businesses’ balance sheets are expected to be seriously eroded by trading losses until conditions revert to something resembling the pre-pandemic norm.
Recently the Australian Tax Office (ATO) reported that business debt has already ballooned from $24.9b (30 June 2020) to $53.8b (30 June 2021 – pre-Omicron) and public messaging shifted late last year to a return to collection focused activity.
In response, the ATO has supported struggling businesses and is actively encouraging taxpayers to lodge their returns on time, even if they can’t pay the tax liability. In these instances, the ATO has refrained from taking enforcement action to collect unpaid debts and has instead been working with taxpayers to agree on a suitable arrangement for the repayment of this debt over time.
One of these arrangements is a Small Business Restructure (SBR) which allows eligible businesses to compromise their debts with the agreement of their creditors to maximise the chances of it trading profitability in the future.
An SBR plan can proceed if a majority of the value of creditors accept the proposal. The resultant position for your business is to be free from all old debt, the preservation of contracts, and no requirement to sell assets, unless it’s an agreed part of the plan.
The SBR process has many benefits for directors including avoiding personal liability for unpaid company debts. Directors can also focus on generating revenue, as opposed to juggling competing demands of angry creditors and disgruntled staff. Creditors will receive payment of some money on their old debt, compared with potentially not getting anything in liquidation, and they will keep trading with the ongoing business as their customer.
In addition, all business insurers categorise SBRs as claimable events and can pay trade credit claims once the SBR process commences, and businesses are eligible to receive up to 90 per cent of the claim straight away, rather than a drip-fed repayment plan.
The SBR process was introduced by the Government in January 2021 as a cost-effective way to restructure the affairs of an insolvent company. During the SBR, creditors are prohibited from taking any action against the business to recover money and/or property, including terminating contracts and formal debt recovery proceedings. Business owners remain in control of their business and the directors are assisted through the SBR by a restructuring practitioner, who must be a registered liquidator. So far we have seen a 90 per cent success rate with businesses who have gone through the process.
To be eligible for the SBR, your business’s total debts must not exceed $1m; all your tax lodgements must be up to date, and all employee entitlements that are due and payable must be paid in full (including superannuation). Your business and its directors (current or in the previous 12 months), must not have engaged in a Small Business Restructure or Simplified Liquidation process in the past seven years.
