3 February 2021

Do my clients qualify for a small business restructuring process?



We are registered liquidators and registered bankruptcy trustees, with more registered bankruptcy trustees than any other private practice/brand in Australia. Complementing our insolvency brand are Principals with certified fraud examiner and forensic accountant qualifications.
Eligibility criteria that your clients need to meet and factors that should be considered when assessing each criterion.
Australia Insolvency/Bankruptcy/Re-Structuring
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Since the commencement of the new insolvency legislation around the small business insolvency process ("SBRP") on 1 January 2021, many of our referrers have come to us with the question "do my clients qualify?"

With the release of the new legislation came eligibility criteria outlining which companies can qualify to access the new solution. While these criteria on paper appear to be self-explanatory, in practice, things are not so clear.

In order for a small business restructuring process to be successfully undertaken, you and your clients need to apply some consideration to the state of the business's affairs prior to appointment. The official timeline of a SBRP is a relatively short 20 business day period. While there is no requirement for obligations and payments to be up to date prior to appointment, once the process is commenced, there may not be time to get things in order.

Below are the eligibility criteria your clients need to meet along with the factors that should be considered when assessing each criterion:

Liabilities are under $1m, excluding employee entitlements.

Has your client fully considered the extend of the liabilities of the Company. Have they factored in any loans related parties have made to the business. Have they considered the impact of third party financing facilities. Have they quantified the outstanding amounts to the ATO.

The Company has not been subject to a simplified liquidation or SBRP in the previous 7 years.

The Company entering into a SBRP cannot have been subject to either SBRP or the simplified liquidation process in the seven years prior to appointment. This includes commencing an unsuccessful SBRP.

This can be checked by confirming with the Directors or completing a search on the ASIC Insolvency Notices website. If you're not sure how to do this, Worrells can help.

Directors, including former directors acting in the preceding 12 months, have not been involved in a simplified liquidation or small business restructure in the previous 7 years.

Similar to the above, any of the current or former Directors of the Company who held the position in the 12 months prior to starting the SBRP, cannot have been the Director of another Company that has been subject to either SBRP or the simplified liquidation process in the seven years prior to appointment.

If the Director is your client, you need to ask them the question. If they aren't, or they aren't forthcoming with an answer, conducting searches of the ASIC database can confirm eligibility. Worrells can provide you with assistance searching the ASIC database to confirm eligibility if needed.

Tax obligations are up to date

While not required at SBRP commencement, there are only 20 days available prior to proposing a restructuring plan to ensure your client has met their tax obligations.

In order to meet this requirement, your client will need to have any tax returns or BAS that are due, lodged prior to proposing the restructuring plan. As such, it is imperative that their books and records are up to date and in a format that can be easily compiled for reporting purposes. Should this not be the case, access will be required prior to appointment to get these to a workable state.

Employee entitlements are up to date

Any outstanding employee entitlements that are due and payable, must be paid prior to a plan being proposed. Your clients need to calculate what, if anything, they owe their employees and make sure that they have the funds available. If superannuation is in arears, meeting this criterion may also require a Superannuation Guarantee Charge (SCG) Statement be completed and payment made to the ATO. As unpaid superannuation is fairly common amongst companies in distress, this could be a huge impediment for qualifying for a SBRP.

If your client is not presently up to date on their eligibility requirements, in particular its SGC obligations, it is likely that there will be insufficient time to calculate and pay SGC before the 20 day statutory time limit expires.

Accordingly, we recommend that consideration be given to whether your clients meet the eligibility criteria prior to commencing a SBRP. We can assist advisors and their clients with ensuring that the client meets the eligibility criteria and also to identify areas that might require action prior to an appointment.

Should you wish to discuss whether a SBRP is the right option for your client, please contact your local Worrells partner. We have a suite of resources available to assist you and your clients in making the best decision.

Please visit our new webpage Or call us directly. Worrells is well positioned and ready to help!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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