What is a Business Restructure?
In a business restructure, all assets and goodwill are valued and sold to a new entity for a fair commercial price. Payment is made to the old entity and the sale proceeds are distributed according to a priority and security positions. If applicable, the new trading entity re-employs all staff and assumes liability for their employee entitlement (except for superannuation).
The old company is then liquidated.
-
When could I consider Business Restructure?
A director could consider a business restructure when the business is unable to pay its debts in full through no fault of its own. Or because the director wishes to continue to pursue their interest in the industry but is unable to continue to trade under the existing company structure, and negotiations with creditors, either formal or informal, are not feasible for one reason or another.
Rather than do any form of negotiation, a director has the option of undertaking a business restructure rather than a debt restructure. This process involves selling the required physical assets and goodwill of the business to a new trading entity.
-
Business Restructuring - Is it legal?
Sometimes a business restructure is referred to as a phoenix and some people think it’s illegal. In fact, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 specifically distinguishes between illegal phoenix activity and restructures that are done as a commercial necessity. It notes that commercial necessity restructures are beneficial to society and the economy when done properly.
Did You Know?
Commercial Necessity Phoenix is legal and recognises the fact that sometimes the need to restructure (phoenix) may arise out of events outside of the business owner’s control. This type of phoenix is considered a business rescue.
