How Small Businesses Can Benefit from the Small Business Restructuring (SBR) Process
Navigating financial difficulties can be challenging for small businesses, especially when dealing with significant tax debts. The Small Business Restructuring (SBR) process, outlined in Part 5.3B of the Corporations Act 2001, offers a structured way for eligible small businesses to address their tax debts and other liabilities.
How the SBR Process Works for Small Businesses
- Eligibility Criteria To utilise the SBR process, your business must meet certain eligibility criteria:
- Liabilities must be under $1 million.
- Superannuation and employee payments must be up-to-date, or you must bring them up-to-date.
- ATO lodgements must be current, or you must rectify them.
- The Proposal The business proposes a restructuring plan to its creditors. This proposal includes a detailed explanation of the business’s circumstances and why the restructuring plan is a better alternative to liquidation or administration.
- Creditors’ Vote Creditors, including the ATO, receive the proposal and vote on it. If the majority approves, the business proceeds with the restructuring plan.
- Continuing Operations Throughout the restructuring process, the business continues to operate under the control of its directors. The entire process typically takes around two months, during which the business remains functional and trading.
Case Study: A Practical Example
Consider a small café facing financial difficulties. Superannuation and payments to employees need to be up-to-date, or can be brought up-to-date. ATO lodgements need to be up-to-date, or can be brought up-to-date. Liabilities of the company need to be under $1 million.
With $180,000 in unpaid taxes and $20,000 in other debts, the café proposes a restructuring plan offering $30,000 to creditors. This proposal provides a better outcome for creditors compared to liquidation or administration.
Creditors receive the proposal via email. Creditors vote and consent to the proposal. In this case study, creditors, including ATO, share in the $30,000. Creditors receive about 15c in the dollar on claims of $200,000 (less deduction for modest costs). The remaining $170,000 owing to creditors by the company would be extinguished (disappear) by operation of the legislation.
Why the ATO May Support Your Proposal
The ATO has shown a positive attitude towards the SBR process, approving 92% of proposals up until October 2023. The ATO generally supports proposals that offer a better recovery within a reasonable timeframe compared to liquidation or bankruptcy. They evaluate proposals based on various factors, including:
- The thoroughness of the proposal.
- The business’s compliance history.
- The likelihood of achieving the proposed plan.
- The tangible benefits to the Commonwealth revenue.
Our Expertise
At Levi Consulting, we have extensive experience assisting small businesses with the SBR process. We can quickly assess your business’s financial situation and guide you through the restructuring process. Our knowledge of the ATO’s approach and the restructuring options available can be pivotal in achieving a successful outcome.
If your business is facing financial challenges and you’re considering the SBR process, contact David Levi at 0418 602 466 for a confidential discussion.
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