On 1 January 2021, the Federal Government introduced a new regime to assist businesses impacted by the Covid-19 pandemic. Small business restructuring is a simple way for companies to settle debts they owe to creditors through appointing a small business restructuring practitioner who puts the settlement proposal to creditors and manages voting.The small business restructuring practitioner does not take control of a company’s business and the directors retain control at all times. We previously wrote about this scheme here.
However, there are some issues and risks with small business restructuring and in this article, we look at what they are.
Up-to-date tax lodgements
One of the key requirements to be eligible for small business restructuring is to have the company’s tax lodgements up-to-date. Many businesses that we have come across over the years did not have their tax lodgements up-to-date. For many of these businesses, it can be an expensive and time consuming task to have their lodgements up-to-date to be eligible for small business restructuring.
On a side note, while it is a requirement to have tax lodgements up-to-date, it is not a requirement for tax liabilities to be fully paid.
Employee entitlements paid
The other key requirement is that businesses must have their employee entitlements paid up-to-date, including superannuation payments. It is easy to overlook these payments (particularly superannuation) when you are struggling to keep a business afloat.
Personal liability of directors
While taking advantage of small business restructuring could be advantageous for a business, the scheme does not provide solutions for directors who have personal liability. These include:
- Personal guarantees – small business restructuring does not provide for debts that a director has provided a personal guarantee for. If a director has provided a personal guarantee for a company’s debt, the director would still be liable for the shortfall debt. More information on personal guarantees can be found here.
- Director penalty notices – a director penalty notice is issued by the Australian Tax Office to recover unpaid PAYG tax, GST and/or superannuation debts.
The rules relating to lockdown director penalty notices will still apply to companies utilising small business restructuring. This means that directors issued with such a notice will continue to be liable even after placing the business under small business restructuring. The ATO can also issue lockdown director penalty notices after the business has been successfully restructured under small business restructuring. More information on director penalty notices can be found here.
If a company holds a licence issued by the Queensland Building and Construction Commission (‘QBCC‘), small business restructuring may cause problems.
Under the Queensland Building and Construction Commission Act 1991 (Qld) (‘QBCC Act‘), it appears that there may be no automatic exclusion for a company if the company enters small business restructuring, whereas there are automatic exclusions if a company is placed in voluntary administration, receivership or an insolvent liquidation.
However, it is possible that a company may lose its license as a result of small business restructuring as the QBCC may assess that it no longer meets the minimum financial requirements for licencing. It is also possible that the QBCC Act may be updated in the future to automatically exclude companies and their directors who enter into small business restructuring.
How We Can Help
If you are considering the small business restructuring process, ensure that you consider the issues discussed in this article. If you wish to discuss your circumstances, don’t hesitate to contact our Brisbane or Gold Coast offices so we can assist you. If the SBR Scheme is not suitable for your situation, we can provide other solutions for you.