In January 2023 ASIC released a report (756) on its review of the Small Business Restructuring (SBR) process. The review period was from 1 Jan 21 to 30 June 22. The report reveals some interesting (and encouraging) statistics for the future of the SBR process.
With the onset of Covid there was, understandably, an expectation that there would be a wave of insolvencies. However, that did not occur, largely due to the Government’s implementation of financial stimulus and incentives, and the suspension of normal insolvency procedures.
These temporary incentives and insolvency law relief mostly ended in early 2021. In January the Government introduced the SBR to support financially distressed businesses post-COVID.
The SBR process would provide a streamlined procedure for eligible companies to take advantage of restructuring opportunities thereby keeping businesses trading and avoiding liquidation. The survival of the business would produce better outcomes for businesses, creditors, employees, and the economy.
ASIC
According to the ASIC report, anecdotal evidence suggests the initial slow uptake may be because:
The eligibility threshold of $1 million owing to creditors is too low;
The requirement to comply with taxation lodgements prevents companies that may otherwise be candidates from accessing the process;
The processes are too complex and do not provide a simple reduced-cost process;
Concerns that the appointment of a restructuring practitioner (RP) may void a company’s business insurance and the automatic cover maintained by a liquidator does not apply as the directors remain in control of the company;
In some states, appointing an RP may void licenses required to operate a business, e.g. a builder’s license.
Although the uptake has been slow, it is gaining momentum as you can see from the graph below. This is mainly due to.
Increased Australian Taxation Office (ATO) collection activity; and
An increasing understanding of the benefits of this restructuring model.
The main benefits are it is simpler and cheaper than voluntary administration or other forms of insolvency appointments. What’s really attractive is that directors remain in control of their business, unlike VA.
The main highlights from the ASIC report are:
There were 82 restructuring practitioner appointments during the review period. From those appointments, 78 proposals were sent to creditors of which 72 transitioned to restructuring plans;
Creditors approved the majority (72) of the 78 proposed restructuring plans sent to creditors (92%);
The ATO was a creditor in 89% of companies that entered a restructuring plan and was a major creditor in 79% of those companies;
Most restructuring plans proposed were accepted by creditors (92%);
Based on available data, the average actual dividend was 15.2 cents on the dollar;
The main sources of plan contributions were from the director(s) and others (44.3%) and future trading profits of the company (33.3%)
Bearing in mind that the above ASIC stats are as of June ‘22. You will notice from the graph that the number of SBRs is increasing exponentially from there.
The stats also clearly indicate that as the main creditor ATO is showing a willingness to support small businesses with debt issues through the SBR process.
------------------------------------------------------------------------------------------------------------------------------- Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies.
Contact us now on p. 1300 765 080 | info@djra.com.au