Restructuring your business may seem like a daunting process. Something you never thought you’d have to do, so instinctively want to avoid at all costs. However, you’re not alone when dealing with the difficult conditions facing you in the short-term future.
While JobKeeper and other government stimulus packages have helped support businesses, many family and small businesses continue to struggle.
We’ll explore voluntary administration, the new small business restructuring reforms, and what they mean for you.
What is voluntary administration?
Voluntary administration is a method used when a business encounters financial difficulty and is unable to pay its obligations. In this case the board of directors can choose someone to act as an administrator. The administrator will then attempt to preserve the business by organising its assets and liabilities.
There is a lot of flexibility and breathing space afforded in the voluntary administration process. The process of restructuring can be quick, fair and transparent if you approach experts early to explain the options.
The administrator can quickly reset the cost base by exiting unprofitable stores, reducing the workforce, and focusing on only buying and selling favourable margin products.
When a liquidation becomes necessary, it is important that everything runs smoothly so there are no misunderstandings or false expectations amongst creditors when considering their interests in relation to one another’s rights.
The secret is to overcome the general stigma associated with restructures, and approach restructuring experts early who will explain each available option and provide an impartial recommendation that aligns best with your individual circumstances.
What are the new small business restructuring reforms?
For small businesses that have few creditors and a single location, voluntary administration is often not appropriate due to associated financial costs and the hurdle accompanying a director relinquishing control.
The government has responded to this critique and offered an alternative. This alternative comes at a perfect time as directors are, once again, exposed to personal liability for insolvent trading.
The new small business restructuring (SBR) reforms offer a lower cost and far simplified restructure process than voluntary administration. These reforms are critical for small businesses to continue to trade after government assistance such as JobKeeper have ceased.
Small businesses will likewise have several new tools at their disposal which would allow them access to greater flexibility in managing their debt.
A new debt reduction and liquidation process will be available for firms with liabilities of $1 million or less.
The changes also include a debt restructuring procedure that allows business owners to keep control of their firm while a debt restructuring professional creates a plan.
Though there have been only a handful of SBRs to date, and their effectiveness to save businesses is yet to be appropriately evaluated, it is an option to explore in the right circumstances.
What does this mean for you?
The COVID-19 crisis has put a severe strain on many previously successful businesses. Though the government and many advisors are attempting to ensure that they do not collapse, directors and business owners need to be proactive and engage help early for them to work.
Often businesses approach liquidators and advisors at the point where their financial problems have become insurmountable, and liquidation is often the only option left. With proper preparation and an effective plan that considers all stakeholders, any business should be able to restructure and continue to trade.
If you act early there may be a number of options available to you including informal arrangements and advice, voluntary administration, and new restructuring reforms for small businesses. However, the longer you hold off the more the business and its available options will deteriorate.
Get in touch with us today to guide you through available options.