iscover SBR regime a lifeline for SMEs in face of solvency woes
BusinessIf a client is looking to action an SBR, there are a few important factors to be considered, writes Adrian Hunter.
The global pandemic may have presented one of the most brutal fights for survival for Australia’s small and medium businesses in recent memory.
However, an outpouring of community support allowed many to stay alive, with people across Australia stepping up to buy an extra coffee from ‘the café down the road’ to help keep the doors open or deliberately spending their money locally to prop up the fish and chip shop where their kids got their first job.
Then, as now, small and medium sized businesses are the backbone of the Australian community. They’re also the backbone of the nation’s finances. Yet many are facing financial challenges as the Australian Tax Office (ATO) loses patience with slow payers, and incoming Payday Super legislation puts increased pressure on business cashflow.
Debt support services are taking calls from Mum and Dad traders in their droves – pointing towards signs of potential collapse for many small businesses. The Small Business Debt Helpline alone saw a 21 per cent rise in calls in the last calendar year with 64 per cent of those relating to ATO debt.
The sad fact is that options to restructure or rehabilitate exist but too few small business owners will know their choices and fewer still may take them.
It’s up to advisors nationwide to raise their voice about mechanisms such as the Small Business Restructure (SBR) regime and focus business owners on the potential of SBRs early and urgently.
The SBR Process
The Federal Government introduced the Small Business Restructure regime after identifying the need for a legislated pathway, specifically designed to save small businesses from collapse.
If a business is looking at voluntary administration, this could be a far cheaper and less disruptive option as it allows directors to remain at the helm with expert support from a registered Small Business Restructuring Practitioner (SBRP) to restructure their debts while they continue to trade.
Eligibility
To be eligible to enter an SBR, businesses must be operated by a company, have less than $1 million in liabilities – excluding employee wages – and they can’t have undergone an SBR or simplified liquidation in the past seven years. Outstanding entitlements owed to employees, such as superannuation also need to have been paid with all ATO lodgements up to date
For a proposed restructuring plan to be accepted, the company will need the support from more than 50 per cent (in value) of the creditors vote.
The SBRP will work hand-in-hand with the business to ensure creditor concerns are addressed in the proposed plan – this is becoming an increasingly important element as the ATO, typically a large creditor for many small businesses, moves to tighten approvals on payment plans.
An analysis will be undertaken by the SBRP to ensure that the return creditors can expect from the SBR process will exceed the likely returns to them should the company be wound up or liquidated.
It is also beneficial for the business to be able to explain to its creditors, via the SBRP’s report to creditors, how the business found itself in financial difficulty and the steps that it is now taking to avoid repeating the sins of the past.
It’s important for advisors to remember that it’s in the ATO’s best interests to rehabilitate businesses – where eligible, rather than see them fold and lose any chance of debt recovery, let alone future tax income.
Considerations
If a client is looking to action an SBR, there are a few important factors to be considered.
Firstly, make sure the SBR service provider is offering transparent and fair pricing that aligns with industry standards. It’s worth noting that legally providers are required to implement a fixed upfront fee.
Given the vulnerability of businesses seeking an SBR, some firms have sadly exhibited predatory behaviour.
Make sure to investigate market averages and, if directors are offered finance, comb through interest rate negotiations.
When you're choosing providers, only select those with ethical practices and proven experience. If you see costs labelled as “success fees”, run for the hills.
When it comes down to it, the secret to success is early intervention.
The earlier that businesses engage in exploring opportunities to restructure or rehabilitate their business, the more options are available and the greater chance there is that one more business will be prevented from facing potential collapse.
Adrian Hunter is a partner in RSM Australia’s Melbourne-based restructuring and recovery division.
