Identifying an ideal small business restructuring client: a guide – Financial Restructuring

Discover what businesses are the ideal candidate for SBR
success

In early 2021, the government introduced the Small Business
Restructuring (SBR) program to assist businesses facing financial
difficulties in recovering easily and affordably.

A key advantage of the SBR process is that it allows directors
to retain control over their business during restructuring, which
is essential for navigating financial distress with minimal
operational disruption. Notably, in Queensland, the regime
doesn’t result in the automatic cancellation of the
builders’ Queensland Building and Construction Commission
(QBCC) license.

Recent successful SBR deals have led to substantial debt
reductions, often ranging from 20 to 40 cents on the dollar.

This has been particularly useful for obtaining compromises on
ATO (Australian Tax Office) debts with payment terms of up to 3
years—especially where the ATO has otherwise rejected
reasonable repayment arrangements and issued director penalty
notices.

As advisors, you are ideally positioned to identify clients who
could significantly benefit from a potential SBR. But who is the
ideal candidate?

Our experience shows that the ideal candidate for SBR often
displays the following traits:

• 
  Historical debt issues
  
  Clients with long-term debt challenges, notably those involving the
  Australian Taxation Office (ATO), are prime candidates. This
  includes substantial tax debts that have escalated to unmanageable
  levels.




• 
  Repayment defaults
  
  Clients who persistently fail to meet repayment agreements,
  indicating an inability to effectively manage their financial
  obligations under existing conditions.




• 
  Underlying profitability
  
  Businesses that are still fundamentally profitable or have a strong
  operational foundation. What is required is a compromise to
  alleviate the strain of historical debts to allow the business to
  recover.

Such clients may find SBR a beneficial relief from their debt
burdens.

The SBR framework allows for restructuring under the
Corporations Act 2001 with specific criteria:

• 
  Debts under $1 million.




• 
  Adequate compliance with tax obligations.




• 
  Up-to-date payment of employee entitlements.




• 
  No involvement of current or recent directors in an SBR process
  within the past seven years.

Next steps

If you have a client matching this or similar criteria, SBR
could provide a feasible option for addressing their financial
dilemmas. This represents an opportunity to assist your client in
paving the way for recovery and sustainable growth. Should you
identify a client who could benefit, reach out, and we can have a
chat to determine whether an SBR is a viable option!

In instances where a client’s situation exceeds the scope of
SBR, we have other solutions available, including voluntary
administration, bankruptcy, or liquidation, to resolve their
affairs effectively. As always, the sooner we have a discussion
about the possibilities, the greater the options available.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.