Debt Lifeline for Struggling Builders and Tradies

As published in the April-June 2022 issue of Master Builder Magazine.

Legislative changes made in 2021 by the federal government to help small business withstand the impact of COVID, are now providing a much-needed lifeline for businesses struggling with an overheating building sector.

The Small Business Restructuring Process (“SBRP”) is designed to provide financially distressed small businesses with access to a single, streamlined process to restructure their debts while allowing owners to remain in control of their business.

A far more favourable option than the traditional insolvency process, the SBRP has four major advantages:

1. There is no requirement to hand the business over to an administrator. This means the business owner stays in control and can continue to make everyday operational decisions.
2. Administrative and legal costs are significantly lower than traditional insolvency action – in the order of 10x cheaper.
3. For those operating in Queensland: In contrast to other insolvency actions, the QBCC do not see the SBRP as a trigger event for licence cancellations or exclusions.
4. With the assistance of an SBRP Practitioner, an effective debt restructuring proposal can result in small businesses negotiating a compromise with creditors that is not only formal but also relatively favourable – i.e. “X cents in the dollar” paid over time.

To be eligible for the Small Business Restructuring Process the business must:

• Be an incorporated Company – i.e. Trusts, Partnerships and Sole Traders are not eligible.
• Have total liabilities which do not exceed $1 million on the day the company enters into an SBRP – this excludes employee entitlements like Super.
• Be likely to either be insolvent or become insolvent in the near future.
• Appoint a Small Business Restructuring Practitioner to assist in the process, including documentation of the debt restructuring plan and restructuring proposal.
• Have all Tax lodgements up to date. I.e. activity statements and tax returns all lodged on time. The Tax debts do not need to be paid to enter into a plan, but must be lodged.

What debts can be included in the SBRP?

• Any unsecured debts incurred prior to the commencement of the SBRP
• Employee entitlements due either prior to or following the SBRP (Super, leave, Long Service Leave, etc) cannot be included in the plan. These debts and any other debts incurred during and after the SBRP must be paid outside the plan.

What is the process for implementing an SBRP?

• Before implementing a debt restructuring plan all current employee entitlements, particularly Superannuation, must be paid and ATO lodgements must be up to date (e.g. Tax Returns, BAS Lodgements lodged on time).
• The business must engage a qualified Small Business Restructuring Practitioner who will work with the business owner to design a debt restructuring plan and proposal to be presented to creditors.
• More than 50% in value of creditors must vote in favour of the plan for it to be adopted.
• Once the plan is accepted, payments will be made to each creditor at the same time, at equal “cents in the dollar” amounts until all obligations are paid under the plan.

A note of caution regarding Trade and secured Creditors!

• The SBRP only applies to unsecured creditors and it is “one in, all in”.
• Unlike creditors like the ATO, many critical trade suppliers will be classed as secured creditors and are not able to be included in an SBRP arrangement.

Where to from here?

The SBRP may provide a much-needed lifeline to assist businesses to trade back to financial health – however business owners must understand their obligations under the process, and even more importantly, look at how they can fix the underlying commercial issues in their business to break the cycle of financial distress.

To find out more about the SBRP, call +61 7 3124 8680 for a free consultation – or complete the form below and we’ll be in touch.