Correcting Misinformation about Small Business Restructuring

Disappointing to see another article in the mainstream media spreading fear and misinformation about the Small Business Restructuring Process (SBR).

The main claim in the article, that the process is overly complicated, is just not true. While the legislation that governs the process has been drafted in a way that makes it difficult to follow, SBRs are an easy and straight forward process in practice.

While take up has been low, any supposed complexity is not the main driver of low appointment numbers. From my experience in the market place, three main drivers are making it difficult for small businesses to take advantage of the SBR process:

1: There is a general lack of awareness that they exist as an option. The government and ASIC have done a very poor job of teaching small business owners and their advisors that SBRs are an option to deal with debt.

2: In order to propose a Restructuring Plan, a company must have paid all employee entitlements. In 3 out of 5 of the companies that approach me about restructuring, this is the key impediment to restructuring. These businesses often have superannuation debts that accrued over the COVID period as a result of Job Keeper payments that they have no way of paying. This immediately prohibits them for entering the SBR process. A simple reform to allow employee debts to also be restructured (similar to what is allowed in the VA process) would solve this issue.

3: There is a cap on debts that can be restructured through an SBR of $1 million. Many businesses exceed this cap and accordingly cannot access the process. Unfortunately for these businesses, Voluntary Administration, the only alternative, costs at a minimum 3 to 4 times as much as an SBR costs, leaving these businesses with no viable option. The ASBFEO's proposal to increase the debt cap to $5 million would be a good start to resolve this issue.

The SBR process is a great innovation for Australian small businesses, providing them with a quick, cheap and effective restructuring option. I've seen how well in can work in the real world across a wide range of industries. However, the restrictions that the government put in place when they introduced the process are limiting the opportunity for small businesses to use the process.

Given the challenges facing the business community heading into 2023, loosening the restrictions would be the right way to improve SBRs and allow more business to take advantage of them, rather than a technocratic focus on simplifying legislation that already works just fine in practice.

https://www.smartcompany.com.au/business-advice/small-business-simplified-restructuring-scheme/