Effective from January 1, 2021
Provides small companies with a simplified debt restructuring process to save their business, reducing time and cost. It enables business owners (DIRECTOR of company) to reach a debt restructuring plan with creditors while retaining control over the business.
Business requirements
- Total liabilities under $1M
- No employee wages in arrears (including wages, annual leave, pension, etc.)
- Business owners (current DIRECTOR or previous DIRECTOR within 12 months) have not done small business reorganization or simplified liquidation (SIMPLIED LIQUIDATION) within 7 years
- The business itself has not undergone a small business reorganization or simplified liquidation within 7 years
Process
Before Appointment of Restructurer – Evaluation and Consent to Appointment
- Measure whether the above four requirements are met
- The business owner signs the resolution (RESOLUTION) to decide to let the company enter the restructuring process
- Determine the cost of the reorganizer (the reorganizer’s fee needs to be a fixed fee. If the reorganizer needs to handle some lawsuits, this part of the fee will be signed and approved by the board of directors).
- The reorganizer must sign and agree to be appointed (the reorganizer must be a registered liquidator)
Proposal Period – Appointment of Reorganizer; Continuation of Day-to-Day Operations; Establishment of Reorganization Plan
- Officially sign off on the appointment of a restructurer
- The company continues to operate as usual, but it needs to disclose that it has entered into a reorganization, and the reorganizer will also notify creditors that the company has appointed a reorganizer
- Reorganizers can sign off on transactions that go beyond the normal course of business (such as the sale of a portion of the business’ assets)
- Within 5 days of appointing the reorganizer, the business owner needs to give the reorganizer a statement stating that the company meets the four requirements mentioned above, and whether the company has a transaction that can be declared invalid (VOIDABLE TRANSACTION)
- Corporate proposed restructuring plan
- The reorganization plan includes listing the assets to be disposed of by the enterprise, how to dispose of them, the start date of the reorganization plan, and the plan should not exceed three years
- Businesses need to list debts owed
- The reorganizer needs to make a statement on whether the information in the reorganization plan and debt list is complete and accurate
- The reorganizer will inform creditors of the details of the reorganization plan
Debtor accepts proposal – debtor confirms debt; creditors vote
- The debtor receives a proposal for a restructuring plan, confirming the amount of the debt
- If the debtor has any objection to the debt amount in the restructuring plan, the debtor can verify the debt amount with the reorganizer
- Debtors vote to approve the reorganization plan
Entering Reorganization Plan – Reorganization Plan Implementation; Reorganization Plan Completion
- The restructurer will notify ASIC and the debtor that the reorganization plan has been approved and implemented
- The restructurer will establish a trust account for the amount required by the business to pay creditors
- Make payments to creditors and complete items in the restructuring plan
- Restructuring plan completed
- If the restructuring plan cannot be completed, control will return to the business owner and the business will not automatically enter bankruptcy
Advantages of restructuring plan
- Avoid business owners INSOLVENT TRADING
- The business owner retains control of the business and can continue to operate
- Fees are lower than bankruptcy costs
- Even if the restructuring plan fails, the company does not automatically enter bankruptcy
If you are facing business restructure in your small business, we’re here to help with you.