In the financial year ending June 2024, there were 1,424 Small Business Restructuring (“SBR”) appointments, marking a steep rise from 474 the previous year. SBR appointments now represent 13% of all insolvency appointments. This is a clear indicator of the success and growing reliance on this process within Australia’s business landscape.
The ATO plays a central role in the success of the SBR process as a valuable tool for business rehabilitation. The ATO is a creditor in 99.5% of SBRs and in many cases is the creditor that holds either a significant majority or total of the Company’s accrued debt.
The ATO have shown incredible support for small businesses engaging in the SBR process, approving nearly 91% of proposals put forward. Based on these statistics, it is clear that the SBR process is capable of producing positive outcomes for debt afflicted businesses as well as other stakeholders, such as employees who retain their employment, trade creditors whose returns are maximised and the economy as a whole which benefits from retention of trade from rehabilitated businesses.
In assessing whether to support a company engaging in the SBR process, the ATO will look at the company’s history, its reasons for insolvency, and whether the proposal represents the best offer that creditors can reasonably expect to receive in all of the circumstances. There is an expectation that businesses will engage with the ATO and all creditors in good faith and a clear focus on generating positive outcomes for creditors in a timely manner, without endorsing opportunistic behaviour that disadvantages creditors that have failed to act reasonably in compliance with their duties and obligations.
CASE STUDY:
We are proud to share with you a recent client of O’Brien Palmer, who successfully implemented a SBR. The company was a builder and was facing major cash flow difficulties. The company owed $600,000 to its creditors, more than 80% of which was owed to the ATO. The Company engaged OBP as its SBR practitioner and with assistance, was able to put forward a proposal that returned $120,000 to the creditors of the Company, with the remaining debt relieved. The business was able to continue trading, all employees retained their jobs, and there was no adverse impact on the Company’s licences.
This result is more than just a financial win for the Company. It also showcases how effective the SBR process can be when executed properly. The ability to return businesses to normal trading, ensure debt relief, and provide creditors with positive outcomes is proof that that the process works when followed.
The SBR process has been transformative in the building and construction industry. Importantly, SBR process does not adversely impact builder’s licenses that the company or its directors might hold in circumstances where the business of the Company continues to trade and clients building projects are not adversely impacted by the process. This is especially important because a large proportion of SBRs are being completed in the Building & Construction industry which is currently facing unprecedented economic difficulties.
The SBR process allows businesses to keep trading and avoiding terminal insolvency which would otherwise lead to job losses and increased losses by creditors. By utilising the SBR process, companies are given a lifeline to restructure and continue operating without risking their licenses, making it a vital tool in the construction space.
If your business is experiencing cash flow difficulties, it’s worth exploring whether the SBR process is right for you. We have another video and blog post about this, you can check that out here: https://obp.com.au/2023/09/28/smalll-business-restructuring/
Or, you can get in touch with myself or one of my very experienced team at O’Brien Palmer. With our proven track record, we are ready to guide you through the process, ensuring the best outcomes for your business and creditors. Get in contact with us today to find out how we can help you
Liam Bailey, Managing Partner
O’Brien Palmer