Identifying an ideal small business restructuring client: a guide

Discover what businesses are the ideal candidate for SBR success

In early 2021, the government introduced the Small Business Restructuring (SBR) program to assist businesses facing financial difficulties in recovering easily and affordably.

A key advantage of the SBR process is that it allows directors to retain control over their business during restructuring, which is essential for navigating financial distress with minimal operational disruption. Notably, in Queensland, the regime doesn’t result in the automatic cancellation of the builders' Queensland Building and Construction Commission (QBCC) license.

Recent successful SBR deals have led to substantial debt reductions, often ranging from 20 to 40 cents on the dollar.

This has been particularly useful for obtaining compromises on ATO (Australian Tax Office) debts with payment terms of up to 3 years—especially where the ATO has otherwise rejected reasonable repayment arrangements and issued director penalty notices.

As advisors, you are ideally positioned to identify clients who could significantly benefit from a potential SBR. But who is the ideal candidate?

Our experience shows that the ideal candidate for SBR often displays the following traits:

• Historical debt issues
  Clients with long-term debt challenges, notably those involving the Australian Taxation Office (ATO), are prime candidates. This includes substantial tax debts that have escalated to unmanageable levels.

• Repayment defaults
  Clients who persistently fail to meet repayment agreements, indicating an inability to effectively manage their financial obligations under existing conditions.

• Underlying profitability
  Businesses that are still fundamentally profitable or have a strong operational foundation. What is required is a compromise to alleviate the strain of historical debts to allow the business to recover.

Such clients may find SBR a beneficial relief from their debt burdens.

The SBR framework allows for restructuring under the Corporations Act 2001 with specific criteria:

• Debts under $1 million.

• Adequate compliance with tax obligations.

• Up-to-date payment of employee entitlements.

• No involvement of current or recent directors in an SBR process within the past seven years.

Next steps

If you have a client matching this or similar criteria, SBR could provide a feasible option for addressing their financial dilemmas. This represents an opportunity to assist your client in paving the way for recovery and sustainable growth. Should you identify a client who could benefit, reach out, and we can have a chat to determine whether an SBR is a viable option!

In instances where a client's situation exceeds the scope of SBR, we have other solutions available, including voluntary administration, bankruptcy, or liquidation, to resolve their affairs effectively. As always, the sooner we have a discussion about the possibilities, the greater the options available.

Looking for more information on SBR or other options? Check out our SBR page here, and our Guide to Small Business Restructuring here.

So, break out your shovel, help your clients dig their heads out of the sand, and let's chat today.