The debts that small business restructuring actually deals with

Admissable claims and how SBR appointments affect creditors.

One of the key eligibility requirements for a company’s director to put forward a Small Business Restructuring (SBR) proposal to their creditors is that the company’s admissible debts must not exceed $1 million.

An "admissible debt" is a debt or claim (excluding any outstanding employee entitlements) that was incurred prior to commencement of the SBR process and would be admissible to prove against a company if it was to be wound up.

Before commencing the SBR process, directors and their advisors should be familiar with the impact it may have on the company’s creditors as the SBR process affects secured and unsecured creditors differently.  

Secured creditors

If a creditor holds a security interest validly registered on the personal property securities register, they may have an admissible debt if:

1. There is an estimated shortfall in the value of their security; or

2. They decide to be bound by the plan for a specified amount.

Common secured creditors and how the value of their security is determined is outlined below:

• Security over all company assets (ALLPAAP):  Required to estimate the value of all the company’s assets subject to their security (if they were all to be sold). If there is an estimated shortfall, the shortfall is then included as an admissible claim in the SBR.

• Security over a specific asset (PMSI): Required to estimate the value of the specific assets (if they were to be sold). If there is an estimated shortfall, the shortfall is then included as an admissible claim in the SBR.

If there is no shortfall, then the registered security holder is not an affected creditor and have no admissible claim in the SBR process. Should that occur, the company is required to continue to meet its obligations to those security holders in the ordinary course of business.

If the proposed SBR plan affects the registered security holder’s rights and they accept the SBR plan, those rights will be varied as set out in the terms of the SBR plan.

Employee entitlements

Another key eligibility criteria for a company’s director to put forward an SBR plan is that the company must be up to date with its employee entitlements (i.e. outstanding wages and superannuation).

It is also important to note that this requirement doesn’t capture accrued leave entitlements, as those entitlements are not admissible debts for the purposes of the SBR plan.

Ordinary unsecured creditors

For ordinary unsecured creditors, the admissible debt is simply the debt outstanding at the time the SBR process commenced. These admissible debts are all included in the SBR plan.

Additionally, if the company entered an ongoing payment arrangement with an unsecured creditor, the payment arrangement will cease to have any effect, and the outstanding balance will just be included as an admissible debt in the SBR plan.

You can read more articles about small business restructuring here. If you or a client have any questions about the small business restructuring process, we encourage you to reach out to your local Worrells Principal for a no obligation and confidential chat.