Small Business Restructuring - Where Are We Now?

The SBR regime has become a vital lifeline, with over 70% of proposals accepted — proving its value for businesses, the ATO, and advisors.

The Small Business Restructuring (“SBR”) regime has proved to be an excellent tool to help revive businesses. It was introduced in January 2021 with little fanfare and plenty of scepticism. In the first six months, there were only 12 SBR appointments.

However, it has gained popularity and has become a genuine and often better option than a voluntary administration or creditors' voluntary liquidation.

Three and a half years on, the number of SBR appointments has skyrocketed. Data released by the Australian Securities and Investments Commission (“ASIC”) shows that in the quarter ended 30 June 2024, there were 549 SBR appointments. This was the largest number of SBR appointments in one quarter. To put these numbers into context, since its introduction there have been 1,957 SBR appointments.

Why is it so popular?

Its popularity has risen because it has received good support from the Australian Taxation Office (“ATO”), which has been a vocal advocate of the SBR regime. In most instances, ATO is the largest creditor and therefore has the controlling vote on whether the proposed plan is accepted or rejected.

It also helps that the SBR process is a debtor-in-possession regime, generally costs less than compared to a Voluntary Administration, and can generate a greater return in a timelier fashion to creditors compared to other external administration options.

In summary, the SBR regime works. The ASIC data shows that between 70% to 80% of proposals being put forward in SBRs are being accepted by creditors. Businesses like it, the ATO likes it, accountants like it and we like it because we much prefer being doctors than undertakers.

Some interesting learnings

From our experience with the SBR regime, we have been able to resolve some interesting issues for several businesses and their advisors, such as:

• What happens after the dividend has been paid in an SBR? How do you, as the external accountant, account for and deal with the tax issues from the compromise of tax debts and non-tax debts, that is, have you considered the commercial debt forgiveness rules and the impact on franking credits.
• Assisting a multi-company group through the SBR regime concurrently.
• Dealing with cross-collateral debt in multiple entities subject to SBR appointments.

We are here to help

The SBR regime has proven to be a viable option for eligible businesses. If you have a client or are a director of a company and have concerns regarding the ongoing viability of a business, please contact our Business Recovery and Insolvency Team at PKF. We can provide expert help with the available options, including consideration of whether the SBR regime is a good fit for the circumstances.