Shaw Gidley SBR Booklet by onefiftymarketing

THE SMALL BUSINESS RESTRUCTURING PROCESS

Presented By Shaw Gidley

WHAT IS THE SMALL BUSINESS RESTRUCTING PROCESS?

If your business is facing financial difficulties, the Small Business Restructuring (SBR) process might be a solution to help you get back on track.

Shaw Gidley has successfully guided numerous companies through this process as an alternative to other insolvency options

SBR allows eligible businesses to regroup, recover, and move forward

This simplified debt restructuring process offers a pathway to viability during challenging times It involves proposing a debt restructuring plan to your creditors. While they review the plan, your business can continue its operations.

One of Australia’s largest creditors, the Australian Taxation Office, strongly supports the SBR process.

OVERVIEW OF THE PROCESS

ELIGIBITY FOR SBR

Feedback we are receiving from the ATO:

Cannotexceeda termofmorethan3 yearsbutprefer24 months.

Lumpsumoffering preferredover instalments

Relatedpartydebts forgivenbywayof deedbeforeSBR commences.

Takeintoaccount lodgmentcompliance history

Want4yearshistorical financialreports/ historicalrelatedparty loanaccount

Dislikeseeingyearend journalsin director/shareholder loanaccounts

WHEN TO CONSIDER SBR

THE COMPANY

The SBRP will confirm the company is eligible to access the restructuring process.

Beincorporated underthe CorporationsAct

Havetotalliabilitieswhich donotexceed$1million onthedaythecompany enterstheprocess (excludingemployee entitlements)

Resolvethatitisinsolvent orlikelytobecome insolventatsomefuture timeandthatasmall businessrestructuring practitionershouldbe appointed

NothaveusedtheSBR processinthelast7years (includinganyofits directors)

Appoint a small business restructuring practitioner (SBRP) to oversee the restructuring process, including working with you to develop your debt restructuring plan and restructuring proposal statement.

POPULARITY OF SBR

ENGINEERING & RETAIL

The Company

Rural engineering/metal fabricator specialising in agricultural machine repairs.

The Issue

Late / non of customer accounts (rural community and economic conditions)

Bad debt $200k

2018/19 drought heavily affected sales

March 2021 floods engulfed premises resulting in loss of equipment

Personal health issues of director

Covid supply disruptions and material increases unable to be passed on due to customer reluctance.

Accountant engaged only for compliance and no advisory services offered.

ATO issued DPN’s (yet to expire)

The Debt

ATO - $560,000

Other - $227,000 (Directors)

Liquidation Return = 0-7cents

Liquid Assets = $46,000 (Cash & Debtors)

Outcome

SBR Plan proposed to creditors

Offer of $80,000 contribution from directors within 24 hours of acceptance.

Resulted in dividend of 9.7 c/$.

Accepted by ATO.

2 of 4 creditors voted RESULT = COMPROMISED 90.3% ($711,300)

WALL & FLOOR TILING

The Company

Local Wall & Floor Tiler

The Issue

Purchased and imported a Kiln to expand into manufacturing tiles. Kiln resulted in damages during transport and in operatable.

Relocated premises to house a bigger operation but unable to break the current lease

Decrease in work orders following Covid-19 Pandemic

Subject to several legal proceedings from suppliers due to non-payment

Recent shipping disruptions from Europe delayed materials, resulting in overall delays to work

Increasing pressure from ATO as no payments were made to the ATO for over 2 years

The Debt

ATO - $86,000

Other - $87,000 (Lenders of last resort)

Liquidation Return = 0-4cents

Liquid Assets = $31,000 (Cash & Debtors)

Outcome

SBR Plan proposed to creditors.

Offer of $27,000 contribution from director within 6 months of acceptance

Resulted in dividend of 14 4 c/$

Accepted by ATO

1 of 6 creditors voted

RESULT = COMPROMISED 85.6% ($150,100)

MANUFACTURING & INSTALLATION

The Company

Sydney based concrete benchtop manufacture and installer

The Issue

Serious health issue of director

Covid-19 lockdowns and restrictions impacted business and compounded effect on director health

Subject to a cyber incident resulting in cancellation of phones, internet, and domains for several months.

Company was reliant on digital marketing, they suffered loss of income and major disruption to business due to this cyber event.

Significant cost increases in the industry and delays in ability to pass onto customers due to fixed contracts

The Debt

ATO - $145,000

Other - $128,000 (Mainly director)

Liquidation Return = 0-6cents

Liquid Assets = $74,000 (Debtors)

Outcome

SBR Plan proposed to creditors

Offer of $45,000 contribution from director within 24 hours of acceptance. Resulted in dividend of 15.7 c/$

Accepted by ATO.

2 of 4 creditors voted

HOSPITALITY

The Company

Sydney based concrete benchtop manufacture and installer

The Issue

Serious health issue of director

Covid-19 lockdowns and restrictions impacted business and compounded effect on director health

Subject to a cyber incident resulting in cancellation of phones, internet, and domains for several months.

Company was reliant on digital marketing, they suffered loss of income and major disruption to business due to this cyber event.

Significant cost increases in the industry and delays in ability to pass onto customers due to fixed contracts

The Debt

ATO - $145,000

Other - $128,000 (Mainly director)

Liquidation Return = 0-6cents

Liquid Assets = $74,000 (Debtors)

Outcome

SBR Plan proposed to creditors

Offer of $45,000 contribution from director within 24 hours of acceptance. Resulted in dividend of 15.7 c/$

Accepted by ATO.

2 of 4 creditors voted

RESULT = COMPROMISED 90.53% ($191,000)

TRANSPORTATION

The Company

Heavy vehicle transport business, specialising in the haulage of grain, fuel and scrap metal

The Issue

Vehicle breakdowns, expensive repairs, and the inability to generate income whilst off the road

Escalating fuel prices, toll costs, & cartage rates

Employee health issues resulting in numerous delays in road haulage and increased costs of runs.

Inability to pass on increased costs to fixed price & fixed term contracts.

The loss of 2 key customers due the customers insolvency, resulting in a substantial decline in income.

The former internal bookkeeper alleged misappropriation of approximately $236,000 during the period of their employment which ended in 2016.

The Debt

ATO - $550,000

Other - $402,000

Liquidation Return = 16-23 cents

Liquid Assets = $99,000 (Debtors & Cash)

Outcome

SBR Plan proposed to creditors.

Offer of $238,000 contribution from director within 6 months of acceptance

Resulted in dividend of 23 8 c/$

Accepted by ATO

FIRE PROTECTION

The Company

Specialised in the installation of fire systems & hydrants

The Issue

Unfavourable EBA agreement, with annual increases

Loss of $300k due to collapse

Additional costs incurred during Covid-19 restrictions, i e travel/fuel etc

Skilled labour shortages – higher wage costs and reworks/productivity issues

Material delays and cost increases unable to be passed onto customers.

Leases of non-core business assets (Caravan and Silverado)

The Debt

ATO - $316,000

Other - $191,000

Liquidation Return = 12-30 cents

Liquid Assets = $131,000 (Debtors & Cash)

Outcome

SBR Plan proposed to creditors

Offer of $160,000 contribution from director within 6 months of acceptance.

Refinance of personal real estate property.

Guarantee by mother of director

Resulted in dividend of 28 9 c/$

Accepted by ATO

TREE ARBORIST

The Company

Specialised in tree pruning, tree removal, land clearing, mulching, & stump grinding

The Issue

Growth of business resulted in additional staff and capital acquisitions

purchased by finance

Director injury resulting in 3 months of work with little supervision of staff

Legal action against company caused distraction.

Equipment breakdown and repair costs.

Over commitment to marketing spend to grow the business.

Little business acumen.

Director living out of business cashflow resulting in substantial director loan owing the company over $200k with no ability to repay.

The Debt

ATO - $303,000

Other - $19,000

Liquidation Return = 9-11 cents

Liquid Assets = $23,000 (Debtors & Cash)

Outcome

SBR Plan proposed to creditors

Offer of $71,500 by way of 24 monthly instalments

Resulted in dividend of 20 18 c/$ Accepted by ATO

RESULT = COMPROMISED 79.82% ($257,000)

LEGAL FIRM

The Company

Legal Firm operating out of Sydney

The Issue

Substantial decline in business following Covid-19 whilst maintaining skilled staff

Wage cost increases

Increase in speculative work with no assurance as to repayment, and long term WIP collectability.

2 x large matters totaling $330k, which was unrecoverable due to client liquidation.

Advanced funds from company to related entities without assurance or ability to repay.

The Debt

ATO - $574,000

Other - $149,000

Liquidation Return = 0 cents

Liquid Assets = $228,000 (Debtors & Cash)

Outcome

SBR Plan proposed to creditors

Offer of $80,000 by way of 24 monthly instalments

Resulted in dividend of 10 c/$

Accepted by ATO

RESULT = COMPROMISED 90% ($647,000)

TELECOMMUNICATIONS

The Company

Specialised in civil works for end-to-end telecommunications installations as part of the NBN roll out

The Issue

$700k decline in income in 2019 due to:

Withholding of NBN works whilst government appointed new delivery partners

Staff redundancies

Delays with tendering process and awarding of contracts

Covid interruptions resulted in additional costs to comply with restrictions, decline in contracted works

Contractor rates varied downwards post COVID whilst other operational costs increased.

ATO filed winding up application against company.

The Debt

ATO - $350,000

Other - $65,000 (mainly Director)

Liquidation Return = 3-20 cents

Liquid Assets = $60,000 (Debtors & Cash)

Outcome

SBR Plan proposed to creditors

Offer of $245,000 by way of 33 monthly instalments with yearly increments

Resulted in dividend of 56 c/$

Winding up application dismissed

Accepted by ATO RESULT = COMPROMISED 90% ($647,000)

EVENT MANAGEMENT

The Company Traffic Control Business

The Issue

Decline in turnover, and increased costs associated with the Covid-19

Pandemic and associated restrictions imposed

The loss of a key senior employee responsible for the administrative and financial functions of the business in September 2022 due to the diagnosis and treatment for throat cancer.

Excessive use of company funds for personal use without assurance as to repayment ($420k).

Rising labour costs and the inability to pass on costs to customers in the short term due to agreed schedule of rates resulting in a deterioration to profitability. Creditors statutory demand issued by ATO.

The Debt

ATO - $909,000

Other - $35,000 (mainly director)

Outcome

SBR Plan proposed to creditors:

Offer of $50,000 within 1 month

$550,000 contribution by way of 30 monthly instalments with yearly increments.

Plan accepted

RESULT = COMPROMISED 90% ($647,000)

ADVISORS ROLE

Responsible for preparing

Financial statements up to date of SBR commencement

All outstanding taxation returns including ITR’s, BAS’s, FBT returns etc.

If proposal is by way of installments from ongoing tra then detailed 12-month cashflow statement needs to prepared.

Completing Outstanding Payr tax returns and Workers Compensation Actual Declarations

Identifying opportunity to underta SBR

Hearing that payment plans over 12 months are difficult to obtain.

Interest remissions are a thing of the past

ATO advising that firmer debt collection will commence with 7 days following non-paymen of debt.

DPN’s popular.

Who pays the advisor?

The client

FEEDBACK RECEIVED

“Heard that some local insolvency specialists have had several SBR proposals rejected by the AT

“Other ins treat the factory’ w guidance

“Shaw Gid approach respected provides the situat

“Shaw Gid forward a cents/$, w achievabl and/or th

“Offer sho than the h hypothet

KEY TAKEAWAYS

SBR is another formal option available to allow small business to compromise debts to return to solvency

Creditor moratorium during proposal period.

If the plan is not accepted, then no automatic liquidation provision, business continues as usual

FREQUENTLY ASKED QUESTIONS

IS THERE A PRO FORMA RESTRUCTURING PLAN?

There is a standard template, however, what assets and how you commit resources is entirely up to you The most common form of a restructuring plan include instalments made from ongoing trading, and/or lump sum contributions from third parties, including the directors

WHO DRAFTS THE PLAN?

The Directors are responsible for preparing the plan. However, it is common for the Directors to obtain guidance from their accountants and input from the Restructuring Practitioner.

HOW MUCH WILL I HAVE TO PAY UNDER THE RESTRUCTURING PLAN?

Whilst there is no pre-determined amount, directors often consider ensuring that a return under the proposed restructuring plan provides a greater benefit to creditors than the estimated return under a hypothetical liquidation scenario

FREQUENTLY ASKED QUESTIONS

DOES THE COMPANY GO INTO LIQUIDATION IF CREDITORS VOTE NO TO THE PLAN?

No. The company continues to operate as it did prior to the SBR appointment and will need to entertain a repayment of creditors debts in full If this is not achievable or viable, then advice should be obtained from a suitably qualified person to consider alternative options that may be available.

CAN A RESTRUCTURING PLAN BE VARIED AFTER IT IS ACCEPTED?

Yes But only by way of an order from the Court which will add significant costs to the process

WHAT HAPPENS IF THE COMPANY CANNOT COMPLY WITH THE REQUIREMENTS OF THE PLAN?

The plan will be terminated, and any funds paid in accordance with the restructuring at the termination date will be distributed to creditors in part satisfaction of their claims.

DO I NEED TO ADVISE ANY CREDITORS BEFORE AN SBR?

No However it would be prudent to discuss the intention with all key stakeholders (including