A spike in applications shows the scheme is gaining traction as a way to handle debts and remain operating, says Jirsch Sutherland.
Distressed small businesses flock to shelter of SBR
Small businesses in strife are increasingly turning to the simplified debt restructuring process introduced during the pandemic with large spikes in take-up over the past two months, according to the latest data from creditor risk specialist Alares.
It found Small Business Restructuring applications during August and September averaged about 75 a month – the first sign the scheme had traction since it was introduced in early 2021.
Alares director Patrick Schweizer said the business community was now more familiar with SBR.
“There’s generally a much better understanding of the process and the benefits among key stakeholders – small businesses, creditors, and restructuring practitioners,” he said.
The ATO stepped up debt collection activity with another wave of director penalty notices but its court actions had dropped off in the past three months, he said.
“A common message we hear from the ATO is that it would prefer not to wind up companies or bankrupt individuals, preferring less terminal solutions to deal with outstanding tax debts and for many, one option is the SBR.”
SBR specialist Jirsch Sutherland said a key attraction of the scheme was the ability for owners to retain control of their business during credit negotiations. Its SBR applications tripled during the July–September quarter and it expected them to keep rising.
“Volume has really accelerated in the past few months,” said Andrew Spring (pictured), one of 17 SBR practitioners at the firm.
“At first, SBRs were an unknown quantity but more and more directors of eligible small businesses, not to mention their advisers, are now inquiring about how the process works.”
The SBR is open to insolvent small businesses with debts of less than $1 million as long as tax and employee entitlements are up to date. The business must appoint a restructuring practitioner and adopt a plan to put to creditors within 20 working days.
Creditors then vote on the plan within 15 business days and more than 50 per cent acceptance is required for it to proceed. The business is allowed to keep trading.
Mr Spring said the success of an SBR hinged on planning and communication with the creditor group.
“A successful SBR must demonstrate why the business finds itself in a precarious financial position, as well as how those events or circumstances have been addressed and overcome, while also convincing creditors and other stakeholders that it’s in their interest to support the restructure.”
“It means this process requires careful consideration to ensure it has the best chance of a successful outcome for all parties.”
Mr Spring said the main sectors adopting SBR are construction, retail and hospitality.
“The take-up of SBRs in the construction sector may be as a result of the lesser licensing impacts in certain states, while retail and hospitality are as a result of rising costs and the decrease in consumer discretionary spending due to the cost-of-living crisis.”