Frequently asked questions

The small business restructuring practitioner oversees the debt restructuring but the company’s directors remain in control of the business. The small business restructuring practitioner assists the company to:

• prepare its restructuring plan and restructuring proposal statement; and
• circulate the restructuring plan and restructuring proposal statement to creditors.

The practitioner must also certify to supplier that they believe the company is eligible for restructuring, and that the company is likely to be able to meet its obligations under the plan. They must take reasonable steps to verify this. Once a plan is made, the small business restructuring practitioner manages the disbursement of payments to the company’s creditors based on the terms set out in the plan.

An insolvent company engages a small business restructuring practitioner (SBRP) to assist with the process. The SBRP confirms the company is eligible to access the restructuring process, with the directors of the company then officially appointing the SBRP in writing.

A letter is sent to suppliers advising that the process has commenced which starts the protection period and a restructure plan is developed.

The directors of the company prepare the restructuring plan in the approved form with the assistance of the restructuring practitioner.

The restructuring plan sets out how a company’s supplier would be repaid if the plan were made. For example, the plan could specify how suppliers will be repaid as a proportion of the debt owing to them, or what ‘cents in the dollar’ they will receive.

The plan is accompanied by a restructuring proposal statement, which includes a schedule setting out the company’s suppliers, and the amount they are owed by the company.

All unsecured debts (debt that does not have any collateral attached) which were incurred prior to the company entering restructuring are included in the restructuring plan.

The exception is employee entitlements (including those not yet payable, like leave or redundancy entitlements), which are not included in the plan.
Debts incurred after the company enters restructuring are not part of the plan and must be paid off outside of the plan

(1)  As soon as practicable after a company executes a restructuring plan, the restructuring practitioner for the company must do the following:

(a)  give to as many of the company’s affected suppliers as reasonably practicable a copy of:

(i)  the company’s restructuring plan; and

(ii)  the restructuring plan standard terms; and

(iii)  the company’s restructuring proposal statement; and

(iv)  the declaration prepared by the restructuring practitioner

(b)  ask each affected supplier to:

(i)  give a written statement setting out whether or not the restructuring plan should be accepted; and

(ii)  if the soppier agrees with the company’s assessment of the amount of the supplier’s admissible debts or claims—verify the supplier’s admissible debts or claims as set out in the schedule of debts and claims included with the restructuring proposal statement; and

(iii)  if the supplier disagrees with the company’s assessment of the amount of the supplier’s admissible debts or claims—notify the restructuring practitioner

(c)  inform each affected supplier of the person to whom the statement should be given and of the need to give the statement before the end of the acceptance period.

(2)  In this regulation:

acceptance period means:

(a)  the period of 15 business days beginning on the day the company’s restructuring practitioner gives documents; or

(b)  if suppliers are given a notice — the longer of:

(i)  the period of 15 business days beginning on the day the company’s restructuring practitioner gives documents; and

(ii)  the period beginning on the day the company’s restructuring practitioner gives documents and ending on the last day of the period of 5 business days after the day on which the notice is given; or

(c)  such other period as the Court orders

suppliers may dispute schedule of debts and claims before restructuring plan is made

(1)  This regulation applies in relation to a person if:

(a)  the person is a supplier of a company that is proposing to make a restructuring plan; and

(b)  the plan has not been made; and

(c)  the person disagrees with the schedule of debts and claims included with the company’s restructuring proposal statement because:

(i)  the person’s admissible debts or claims are not specified; or

(ii)  the company’s assessment of the person’s admissible debts or claims is incorrect; or

(iii)  the person is incorrectly specified as an excluded supplier.

Supplier may notify restructuring practitioner of disagreement

(2)  The person may give written notice of the disagreement to the company’s restructuring practitioner.

(3)  The notice:

(a)  may be given:

(i)  if the person received a copy of the plan—within 5 business days after the day on which the person receives the plan; or

(ii)  if the person otherwise became aware of the plan—within 5 business days after the day on which the person becomes so aware; or

(iii)  after the period specified above, if the notice includes a statement setting out the person’s reasons for not giving the notice within that period; and

(b)  if the disagreement relates to the person’s admissible debts or claims:

(i)  must include detailed particulars of the debt or claim sought to be proved; and

(ii)  in the case of a debt, must include a statement of account; and

(iii)  must specify the vouchers (if any) by which the statement can be substantiated; and

(c)  if the disagreement relates to the person’s status as an excluded supplier—must include detail sufficient to resolve the disagreement.

(4)  The restructuring practitioner may, after receiving the notice, request that the person or the directors of the company:

(a)  give the restructuring practitioner information about the company’s business, property, affairs and financial circumstances; and

(b)  verify the information by statutory declaration.

Restructuring practitioner may refuse to consider disagreement

(5)  If the notice is given after the period specified in subparagraph (3)(a)(i) or (ii), the restructuring practitioner may refuse to consider the disagreement if the restructuring practitioner is satisfied that the person did not take all reasonable steps to give notice within that period.

(6)  If the restructuring practitioner refuses to consider the disagreement:

(a)  the restructuring practitioner is taken to have recommended that the schedule of debts and claims not be varied; and

(b)  the restructuring practitioner must give written notice to the company and the person setting out the restructuring practitioner’s reasons for the refusal

Restructuring practitioner must resolve disagreement as soon as practicable

(7)  If:

(a)  a person gives notice of a disagreement to the restructuring practitioner for a company; and

(b)  the restructuring practitioner has not refused to consider the disagreement

the restructuring practitioner must:

(c)  give written notice to the company and the person:

(i)  setting out the restructuring practitioner’s recommendations for resolving the disagreement; and

(ii)  giving reasons for the recommendations; and

(d)  if the restructuring practitioner recommends that the schedule of debts and claims be varied and is of the opinion that the variation is significant—give written notice to the company and as many of the company’s suppliers as reasonably practicable:

(i)  stating that fact; and

(ii)  outlining the suppliers’ rights.

(8)  If the restructuring practitioner recommends that the schedule of debts and claims be varied, the company must vary the schedule in accordance with the recommendation as soon as practicable.

suppliers may change vote

(1)  This regulation applies if:

(a)  a company proposes to make a restructuring plan; and

(b)  an affected supplier of the company gave a statement in relation to the plan.

(2)  At any time before the end of the acceptance period, the supplier may:

(a)  withdraw the statement; and

(b)  give a new statement in relation to the plan.

(3)  A statement may be withdrawn, and a new statement may be given, more than once before the end of the acceptance period (the period of 15 business days beginning on the day of the restructuring plan)

company under restructuring must do certain things

This regulation is satisfied in relation to a company under restructuring if:

(a)  the company has:

(i)  paid the entitlements of its employees that are payable; and

(ii)  given returns, notices, statements, applications or other documents as required by taxation laws (within the meaning of the Income Tax Assessment Act 1997); or

(b)  the company is substantially complying with the matter concerned

If a company’s proposal to make a restructuring plan is accepted  the company is taken to have made the restructuring plan.

The restructuring plan is taken to have been made:

(a)  if the plan is expressed to be conditional on the occurrence of a specified event within a specified period and the event occurs within that period—on the day after the end of that period; and

(b)  otherwise—on the day after the end of the acceptance period.

A restructuring plan that has been made has the same force and validity as if it were a deed executed by each of the parties to the plan.

standard terms for restructuring plans

(1) Restructuring plan made by a company is taken to include all of the following terms:

(a)  all admissible debts and claims rank equally;

(b)  if the total amount paid by the company under the plan in respect of those debts or claims is insufficient to meet those debts or claims in full, those debts or claims will be paid proportionately;

(c)  a creditor is not entitled to receive, in respect of an admissible debt or claim, more than the amount of the debt or claim;

(d)  the amount of an admissible debt or claim will be ascertained as at the time immediately before the restructuring began;

(e)  if a creditor is a secured creditor:

(i)  if the creditor does not realise the creditor’s security interest while the plan is in force, the creditor is taken, for the purposes of working out the amount payable to the creditor under the plan, to be a creditor only to the extent (if any) by which the amount of the creditor’s admissible debt or claim exceeds the value of the creditor’s security interest; and

(ii)  if the creditor realises the creditor’s security interest while the plan is in force, the creditor is taken, for the purposes of working out the amount payable to the creditor under the plan, to be a creditor only to the extent of any balance due to the creditor after deducting the net amount realised.

(2)  A restructuring plan is void to the extent that it is inconsistent with any of the matters.

parties to restructuring plan

The parties to a restructuring plan are:

(a)  the company to which the plan relates; and

(b)  any person who has an admissible debt or claim in relation to the plan.

When a company enters into restructuring, a moratorium is applied on unsecured creditor claims and some secured creditor claims. This means:

• unsecured creditors cannot begin, continue or enforce their claims;
• owners of property (other than perishable property) used or occupied by the company, or people who lease such property to the company, cannot recover their property;
• secured creditors cannot enforce their security interest in the company’s assets in some circumstances;
• a creditor holding a personal guarantee from the company’s director/s or their relatives cannot act under the personal guarantee without the court’s consent; and Ipso facto clauses (which are triggered during
  insolvency-related events) are stayed for some contracts.

Before you can put a plan to your suppliers, your company must be in substantial compliance with the following requirements:

• Employee entitlements which are due and payable (that is, those which are outstanding and must be paid) have been paid. This excludes leave and other entitlements that are not currently due to be paid.
• Tax lodgments are up to date. That means that all relevant tax returns and activity statements are lodged with the ATO. Tax debts do not need to be paid for a plan to be put to creditors.

The restructuring practitioner provides suppliers with the restructuring proposal statement and the restructuring plan. Once a plan is put to suppliers, they may vote to accept or reject the plan. They have 15 business days to vote to accept or reject the plan. The restructuring practitioner oversees the voting process.

During this ‘proposal period’, suppliers can seek to vary the debt the restructuring statement says they are owed if they believe it is not accurately reflected in the restructuring proposal statement.

A plan is accepted if more than 50 percent of the suppliers by value that vote, vote to accept the plan. To ensure integrity, related party suppliers (that is those linked to the company, its directors or its shareholders) are not entitled to vote on a restructuring plan.

The company must put a restructuring plan to its creditors within 20 business days of entering the process. The company’s small business restructuring practitioner can extend this period by up to 10 business days where an extension is reasonable in the circumstances. Once a plan is put to suppliers, they have 15 business days to vote to accept or reject the plan.

Once a plan is made, payments must be disbursed to a company’s suppliers in accordance with the terms set out in the plan. All admissible debts and claims rank equally upon repayment of the plan. That means that all suppliers are paid the same ‘cents in the dollar’ and all are paid at the same time.

When a company pays off its obligations under the restructuring plan, it is released from all debts or claims that were admissible under the
plan.

A company ‘exits’ a plan if, for example, it fails to make payments under the plan. If this happens before its obligations are paid off, it remains liable for the original debt owed prior to the plan commencing, minus any repayments that occurred under the plan.

The plan must be supported by more than 50 percent of the suppliers by value that vote.

If the restructuring plan is not accepted, the restructuring process ends. You remain in control of the company but suppliers are no longer prevented from enforcing their rights  and you are no longer protected from liability for insolvent trading.

You may wish to consider placing the company into liquidation. The Government’s reforms include a new simplified liquidation process which makes the liquidation process faster and cheaper. Further information on liquidation is available on the ASIC website and your small business restructuring practitioner may also be able to provide information

If a restructuring plan is accepted by suppliers, the debt restructuring process will be at an end.

However, the process can also be ended at any time, and for any reason, by a resolution of the company’s directors, and by the restructuring practitioner if the practitioner believes the company doesn’t meet the eligibility criteria, or that it would be in the interests of the suppliers for the restructuring to end.

The process will also be at an end if:

• the company fails to propose a plan to its suppliers;
• the suppliers vote against the plan;
• the restructuring practitioner cancels a proposal to make a plan after becoming aware that relevant information has been omitted or was incorrect or there has been a material change in the company’s circumstances;
• an administrator or liquidator is appointed to the company; or
• the court orders that the process should end.