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Small Business Restructuring And Insolvency In 2022

Small Business Restructure (SBR) – To help businesses that may have trouble coping following the withdrawal of its COVID-19 incentives, the government has introduced new reforms — specifically the small business restructuring reforms — to give financially challenged SMEs with debts under $1 million the ability to restructure their debts while the directors remain in control.

As we move through 2022, the levers of policy are being adjusted to reflect the new post-pandemic world for small to medium enterprises (SMEs) within Australia. Although revenue streams are still fluctuating somewhat throughout various industries, various support mechanisms and incentives related to the pandemic have gradually expired, creating a new environment for businesses that may be highly leveraged, or experiencing cash flow issues. While subsidies have been available, not all obligations get written off – bills for the Australian Tax Office (ATO) and incidentals still need to be paid. Within this context, many SMEs are exploring restructuring options, in order to create greater assurances and longevity for businesses experiencing financial difficulties.

The ATO has remained primarily focussed on trying to ensure that as many businesses as possibly experiencing insolvency issues are able to keep their doors open, and workers employed. Insolvency numbers are the quietest they have been in years, and the ATO and banks have been largely inactive in pursuing corporate debts. This is gradually changing as post-pandemic business conditions settle, however numerous restructuring options remain available to business owners across the country.

We recently sat down with Michael Hogan from Hogan Sprowles to discuss the new insolvency reforms and how they will impact businesses of all sizes. As experts in restructuring, turnaround and liquidation, along with being members of the Institute of Chartered Accountants Australia and New Zealand (ICAA), Australian Restructuring, Insolvency and Turnaround Association (ARITA) and Turnaround Management Association (TMA), Hogan Sprowles are well placed to provide both formal and informal advice to their clients across numerous industries.

What Are The Business Restructuring Changes?

The ‘Simplified Debt Restructuring Process’ allows for a qualified change to the restructure options available to certain businesses, should it meet certain eligibility criteria. In simple terms, should your business have debts amounting to less than $1 million AUD at the commencement of the process, then you may be able to restructure your debts whilst retaining directorial control of the business.

Contained within the application for this process is an acknowledgement that your business is either currently insolvent or likely to be. Insolvency refers to the inability for a business to make repayments on their liabilities as they are due.

If a business qualifies for the Simplified Debt Restructure Process, then they will begin the process of creating a debt restructuring plan. Essentially it is a self-managed option, allowing an eligible small business to retain control of the company throughout, as opposed to handing the reins over to a liquidator to manage the process and business. 

A key outcome is to provide a formal repayment plan which, if enacted, will detail a predetermined return for creditors in certain cents-on-the-dollar or percentage terms. Accompanying this will also be a restructuring proposal statement, outlining a schedule nominating the company’s creditors and the amount owed within a certain number of business days.

So What Are My Options For Restructuring?

With the Australian Tax Office (ATO) recently notifying companies that are in arrears that they are intensifying their debt collection efforts, and issuing Director Penalty Notices (DPN), now is the time to be proactive in exploring all options.

Michael Hogan, from Hogan Sprowles, mentions the base advice to SME business owners and management teams remains the same “Early Intervention is key. Someone like Kapil, and the Equil team, can identify 6 months, 18 months, 2 years in advance. When we have a potential problem we should talk about it now. It’s why we love working with their team – the foresight and clarity they can provide is such a crucial advantage for any client business to have”.

Experienced financial service providers are essential to forward plan for any such eventuality, looking many months or years ahead into your business’s financial future to be able to identify if/when you need to commence restructuring proceedings. We asked Michael to share what he felt were the main signs of potential insolvency triggers. Michael stated, “There are some key challenges businesses could be facing such as lacking the working capital to support growth, balance sheet issues, creditor arrears, or problems with the working capital cycle.”

We absolutely agree early intervention is crucial, and can mean the difference in the survival of the whole operation whilst ensuring that the interests of creditors are addressed. Michael went on to outline four distinct pathways that businesses take in regards to their situation: 

Looking at deals with creditors

Creditor businesses offer further leverage arrangements that restructure the debt by ensuring repayments on due credit are made, while taking a potentially more highly geared position for the business overall due to the additional interest. In other words, there is often potential to take out a loan to cover your existing loan repayments.

A business may choose this option if they feel confident that revenue streams are going to pick up in the foreseeably close future, enabling them to ultimately service any and all repayments as this cash flow increases.

Small business restructuring process (SBRP)

This pathway is the one affected most by the adjustments of the Simplified Debt Restructuring Process. In coordination with expert financial advisors, the business will undertake a process whereby they reorganise their business and debt obligations, nominating both the creditor, how much they are owed, and outlining a repayment plan that schedules how any liabilities will be accounted for.

As mentioned above, legislative changes allow SMEs with debts totalling under $1 million when they commence this process to remain in charge as directors of the company. Additionally they may continue to undertake transactions, so long as they are associated with the ordinary course of business.

Voluntary administration (Deed of Company Administration)

Voluntary administration involves handing the reins of the business over to a registered administrator/liquidator, who operates the business with the express purpose of being able to cover any outstanding debt obligations whilst keeping regular operations ticking to some degree, through insolvent trading. Usually this pathway is taken when the determination is made that the company may still potentially be a profitable future operation, presenting a more attractive option than complete liquidation.

As an experienced registered liquidator, Michael Hogan notes that inherent within this process for business is a Deed of Company Administration (DOCA) document, that outlines to both creditors and those involved with the company exactly how any operations will continue under external administration in order to potentially allow the company to survive whilst servicing its repayments.

Liquidation

Liquidation is often seen as the final straw for a business in financial distress, the dissolving of any and all assets, combined with any remaining cash, to maximise a final repayment of as much of a business’ debts as possible. It is a shuttering of the doors – closing any shopfronts and discontinuing any employment and employee entitlements.

Ideally a business may be able to enact one of the three pathways prior, allowing operations to be maintained on some level whilst addressing money owed to any secured creditors. The simplified liquidation process isn’t so much a restructuring mechanism as it is an acknowledgment of no other option. Once the process is entered into the business is essentially no more.

When Entering This Process, What Are the Keys?

As an experienced provider within this field, Michael Hogan details a few key considerations that every business owner should make when considering any and all potential restructuring options, that may allow them to make a better informed decision for their particular circumstances:

  1. SMEs need to be proactive and diligent with providing information and communicating information about their business affairs with their accountant. Transparency is absolutely vital, as your accountant will not be able to provide the most appropriate information unless they are fully across the facts and all admissible debts.
  2. Your accountant needs to have a broad understanding of insolvency, as well as the indicators to look out for – in order to be proactive and potentially prevent the nuclear option of liquidation. Any ability to get out ahead of such circumstances might make all the difference when it comes to the long-term survivability of the business.
  3. It is imperative that your accountants work closely with highly-skilled and regarded liquidation and restructuring specialist firms. The specialist advice provided by such an insolvency practitioner, with intimate knowledge of any regulation frameworks, corporations act and applicable actions, is invaluable throughout this process.

As ever, should you wish to receive restructuring advice tailored specifically to your business, and its particular circumstances, it is always advisable to contact an expert accounts service provider with a broad understanding of insolvency, such as Equil Advisory or registered liquidator Hogan Sprowles, as we will be able to more accurately advise you on a case-by-case basis. Mitigating the worst outcomes in these situations requires expert advice from a trusted financial partner who can guide and support you.

Should you wish to further explore the options as they pertain to your specific business, you can speak with our Equil Advisory team.

Albert Tan

Business Services Accountant

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How did you end up at Equil Advisory?
I was looking for a new place to clear my throat and break the office silence.

When did you start at Equil Advisory?
When I was assured that there would be another Malaysian member of the team.

What do you do at Equil Advisory?
Play hide-and-seek in the bathroom.

What do you do when you aren’t at work?
Go to the gym.

What is something not everybody knows about you?
I don’t know how to pronounce geography properly.

If you had to apply for a reality TV show what would it be?
Survivor.

What would your last meal be?
Macaroni and cheese with milk.

Cats or dogs?
Neither.

Gaurav Shrestha

Business Services Accountant

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How did you end up at Equil Advisory?
Everyone I knew had caught on to my long stories, decided to go find new people who had never heard them before.

When did you start at Equil Advisory?
When I heard they were having a massive Christmas party.

What do you do at Equil Advisory?
Go off on tangents and ask people if they’re good.

What do you do when you aren’t at work?
I would be out hunting ghosts or singing while playing the guitar.

What is something not everybody knows about you?
No drop of rain has ever landed on my head.

If you had to apply for a reality TV show what would it be?
Masterchef Australia.

What would your last meal be?
Double beef burger and a steak on the side.

Cats or dogs?
Cats and dogs are the most popular pets in the world. Cats are more independent and are generally cheaper and less demanding pets. Dogs are loyal and obedient but require more attention and exercise, including regular walks. But what I actually really prefer, I guess it actually depends… -character limit reached-

Albert Tan

Business Services Accountant

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How did you end up at Equil Advisory?
I have always wanted to be an accountant due to the influence of my family as most of them are accountants. I joined Equil Advisory as it offered me a different opportunity to work on compared to other accounting firms as well as allowing me to develop different skills.

When did you start at Equil Advisory?
28th February 2022.

What do you do at Equil Advisory?
My role at Equil Advisory includes tax compliance work and assisting client in their day-to-day business with EA’s outsourced CFO function.

What do you do when you aren’t at work?
Spending time with my wife, talking to my family or reading light novels.

What is something not everybody knows about you?
Love spicy food even though I can’t handle it at all.

If you had to apply for a reality TV show what would it be?
Voice actor in any cartoon shows.

What would your last meal be?
Roti Telur Bwang.

Cats or dogs?
Love cats and dogs equally.

Pragti Sharma

Administrative Assistant

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How did you end up at Equil Advisory?
I wasn’t allowed to give free food to my friends at Oporto anymore.

When did you start at Equil Advisory?
When I completed shopping for my professional wardrobe.

What do you do at Equil Advisory?
Listen intently to people’s conversations and mimic them during our lunch breaks.

What do you do when you aren’t at work?
Finesse my Australian accent.

What is something not everybody knows about you?
South India is my favourite part of India.

If you had to apply for a reality TV show what would it be?
Fear Factor.

What would your last meal be?
Steamed dumplings.

Cats or dogs?
Both!

Pragti Sharma

Administrative Assistant

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How did you end up at Equil Advisory?
When I was a child, dealing in numbers was never a problem! But still, I passed mathematics on the verge.

Gradually, I realized that numbers are in my favour and so are the associated calculations. As a result, I pursued Accounting with Finance, which helped me develop an interest in accounting systems. Further, securing a career in accounting lead me to make my way to EQUIL.

This is my first professional job, and I am too excited to be a part of the team.

When did you start at Equil Advisory?
It’s my second week at Equil! I started on 10th February 2022.

What do you do at Equil Advisory?
I have started as an administrative assistant, so my work includes responding to the client emails and undertake day-to-day admin tasks.

What do you do when you aren’t at work?
Most of my time goes out at talking to my friends and family, back home in India. If, I still have more to go, Netflix is my best thing.

What is something not everybody knows about you?
I am only serious for who I want to be and what I want to achieve.
On the other hand, those who think I am serious, shouldn’t know, the time I tried the 30-day weight lost diet, I lost another 30 days!
I can never stick to a diet!!!!

If you had to apply for a reality TV show what would it be?
Fear factor - Khatron ke Khiladi.

What would your last meal be?
Anything and everything that I get hand-cooked by my Mommie.

Cats or dogs?
Dogs, only to watch them play from a distance.

Sabrina Truong

Business Services Accountant

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How did you end up at Equil Advisory?
I wanted to see how people who eat unhealthy actually live.

When did you start at Equil Advisory?
Just as the second lockdown was about to begin, so I didn’t have to talk to people in person.

What do you do at Equil Advisory?
Eat raw veggies and perfect my American accent.

What do you do when you aren’t at work?
Driving around Sydney for the best fast food places.

What is something not everybody knows about you?
I eat banana bread with chopsticks.

If you had to apply for a reality TV show what would it be?
Man vs Food.

What would your last meal be?
Deep fried chicken and chips with extra chicken salt.

Cats or dogs?
Cats!

Sabrina Truong

Business Services Accountant

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How did you end up at Equil Advisory?
My dad is a bookkeeper, so it was natural for me to choose accounting as a degree. Accounting allows me to help others grow their businesses and achieve their goals, which is something I am passionate about. I joined Equil Advisory because it is not like your typical accounting firm. I also wanted to be part of a team that is supportive and provides the opportunity for me to develop and grow my skills.

When did you start at Equil Advisory?
July 2021.

What do you do at Equil Advisory?
A large part of my role is focused on tax compliance and the other part is dedicated to building client relationships so that I can better help our clients with EA’s outsourced CFO function.

What do you do when you aren’t at work?
You would find me watching Netflix, working out, or hanging out with friends/family.

What is something not everybody knows about you?
I am learning Korean.

If you had to apply for a reality TV show what would it be?
Super Trio Game Master.

What would your last meal be?
Pepperoni Pizza.

Cats or dogs?
Dogs!

Gaurav Shrestha

Business Services Accountant

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How did you end up at Equil Advisory?
Growing up I was exposed to the business environment, so I always wondered about the ins and outs of the business, how it runs and how to be financially sound. This piqued my interest on business studies and further after that into accounting. I wanted to broaden my horizons, knowledge and have a sound work life balance which led me to Equil Advisory.

When did you start at Equil Advisory?
17th December 2021.

What do you do at Equil Advisory?
At Equil Advisory, we are exposed a range of work that include tax compliance, bookkeeping, tax advice, liaising with the clients and outsourced CFO functions. My work is predominately occupied by tax compliance and outsourced CFO function.

What do you do when you aren’t at work?
I’m mostly out with my cousins or friends. Binge watching series or may be hop online to play some games.

What is something not everybody knows about you?
I can speak four different languages and I love gaming.

If you had to apply for a reality TV show what would it be?
The Voice.

What would your last meal be?
Mo Mo.

Cats or dogs?
Dogs.

June Wong

Business Services Senior

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How did you end up at Equil Advisory?
My sister got tired of me working from home and hence decided to join EA.

When did you start at Equil Advisory?
Just as the first lockdown was lifted.

What do you do at Equil Advisory?
Eat Coco Pops and telling people what I am honestly thinking.

What do you do when you aren’t at work?
Planning my next EA Team workout session.

What is something not everybody knows about you?
I am scared to sleep alone.

If you had to apply for a reality TV show what would it be?
Survivor – because I wouldn’t last a day.

What would your last meal be?
I can’t decide between all the YUM-MEE animals of the world.

Cats or dogs?
Porcupine.

June Wong

Business Services Senior

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How did you end up at Equil Advisory?
I realised that a lot of people that work in chartered firms are not the happiest. Thus, I was looking for a place where I am happy to go to work every day. I think I found it at Equil.

When did you start at Equil Advisory?
May 2021.

What do you do at Equil Advisory?
Connecting with clients and providing them with all the support they need so they can be at ease and have confidence that they are well looked after.

What do you do when you aren’t at work?
Watching dramas at home while lying on bed.

What is something not everybody knows about you?
I actually thought of becoming an IT person and did a couple of months of IT degree before realising that I am not tech-savvy at all.

If you had to apply for a reality TV show what would it be?
Amazing Race.

What would your last meal be?
Hotpot with lots of veges, mushrooms and tofu!

Cats or dogs?
Neither.

Kupakwashe Doroh

Business Services Accountant

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How did you end up at Equil Advisory?
Being second fiddle to a Youtube Vlog star wasn’t cutting it.

When did you start at Equil Advisory?
I needed an excuse to not go to the gym.

What do you do at Equil Advisory?
Write short stories and make sense.

What do you do when you aren’t at work?
Personal cashflow using resources from EA.

What is something not everybody knows about you?
My hair feels like your standard carpet.

If you had to apply for a reality TV show what would it be?
House husbands of North Sydney.

What would your last meal be?
Beef or seafood.

Cats or dogs?
Cows.

Kupakwashe Doroh

Business Services Accountant

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How did you end up at Equil Advisory?
I was looking for an opportunity to be able to grow in my accounting career. I have always had a passion for numbers, and I wanted to understand how to translate this technical knowledge into specific solutions for business growth and development. I found Equil Advisory to be a place that would nurture me into a fully-fledged Accountant by providing continuous guidance and support. I am able to learn from experienced professionals providing proactive advice and expertise to clients by creating intimate relationships. Additionally, I also wanted to be part of a diverse team from different backgrounds with different experiences.

When did you start at Equil Advisory?
September 2020.

What do you do at Equil Advisory?
My role at Equil Advisory includes a range of tax compliance work and performing our outsourced CFO function. I have been lucky to be part of the daily operations of clients’ business where we help ensure we are adding value to all aspects of their businesses and providing advice and guidance to help them grow.

What do you do when you aren’t at work?
Play basketball. watching basketball and religiously watching my favourite TV shows with the twitter community.

What is something not everybody knows about you?
I once played Football for my National team.

If you had to apply for a reality TV show what would it be?
Big Brother AU.

What would your last meal be?
Peanut butter rice, coleslaw and chicken stew.

Cats or dogs?
Dogs.