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Insightful article by Kiara Calvert on Small Business Restructuring

Hamilton Calvert Advisory

New pathway helping small businesses get out of debt and keep their doors open

NEW PATHWAY HELPING SMALL BUSINESSES GET OUT OF DEBT AND KEEP THEIR DOORS OPEN


TIMES ARE TOUGH FOR SMALL BUSINESSES, BUT HELP IS AT HAND TO WEATHER FINANCIAL STORMS, WRITES KIARA CALVERT


March 2020 was an unprecedented time to run a small business as economies around the world shut down due to Covid-19. Hundreds of Tasmanian businesses reached out for solutions to the hit they were about to take. It was a scary time to be in business.


The Australian government provided enormous financial incentives by way of Job Keeper and boost payments to keep businesses’ doors open and staff paid. The Tasmanian government, councils, and utilities threw everything at providing funds to stabilise and stimulate small business and provide a way forward.


As the pandemic eased, small business was in uncharted waters, everyone was guessing – Would we enter a deep recession? Would we have massive unemployment?

As events turned out, the spiralling increase in energy costs in 2022 and the amount of spending led to rapid inflation.


The old adage is true, everything that goes up, comes down. The Reserve Bank of Australia raised interest rates dramatically to combat runaway inflation, a war that is still under way with no end in sight.


Small business is now doing it tough, through a combination of factors including high interest rates and inflationary effects on energy, and materials and inputs. In addition, the Australian Taxation Office is ramping up collections, putting many businesses in deep financial trouble and struggling to survive.


To provide a pathway to save as many businesses as possible, the Australian government introduced a new insolvency regime, Small Business Restructuring – a pathway for small businesses to combat debt, keep the doors open and survive long term.


Small Business Restructuring (SBR) is an administration that allows eligible businesses a one-off opportunity to restructure their company debt and reach an agreement with creditors. It is simpler, affordable and faster than any other form of external administration and is becoming the “go-to” solution for many small businesses in financial difficulty.


In September 2023, the tax office advised that 737 SBRs had been initiated with a 92 per cent acceptance rate. That number is expected to increase exponentially and the high approval rate indicates that the process has been successful in helping businesses restructure their debts.


To be eligible for SBR, a business must be a company incorporated under the Corporations Act, insolvent, or likely to become insolvent with unsecured creditors of less than $1m.


Employee entitlements must be up to date and all lodgements with the ATO must also be up to date.


There is also a requirement that directors must not have had other companies enter certain external administration in the past seven years.


The SBR process involves the appointment of a SBR practitioner who works closely with the director to develop a restructuring plan to creditors to pay off their liabilities, in full or in part over a maximum period of three years, which is sent to creditors to vote on.


A plan is accepted if more than 50 per cent of the creditors by value that vote accept the plan and, if accepted, the SBR practitioner will distribute funds according to the plan. After distribution, the company is released from past debts covered by the plan and can successfully trade into the future.


If a distressed small business does not presently qualify, directors need to create the breathing space to qualify by working quickly to get up to date with lodgements and paying superannuation and employee debts.


The SBR regime is very well suited to small businesses in Tasmania and will continue to be increased in scope as more people become aware of the financial benefits.

The many benefits of SBR include; directors stay in control of the business; the company can continue to trade; the process is fast with creditors required to vote within 35 business days; and debt is permanently written off.


For more information on SBR, speak to your accountant, lawyer or contact a registered practitioner.


Kiara Calvert is Tasmania’s newest registered liquidator, trustee in bankruptcy and small business restructuring practitioner. She is a partner of Hamilton Calvert Advisory

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Small Business Restructuring Success Story - debt reduced by 45%

By Kiara Calvert • 16 Apr, 2024
Success Story – Retail Business THE BUSINESS A well established retail business located in Tasmania operating for over 16 years. The business had experienced a reduction in sales due to a competitor commencing business in the region coupled with the director sustaining a lifestyle using company funds instead of addressing tax debt. THE SOLUTION Hamilton Calvert Advisory worked with the director to establish change in business practices, long term viability of the business and assisted with the creation of a repayment proposal to creditors. We worked closely with the ATO (major creditor) to negotiate any potential issues with the restructuring proposal, which was ultimately accepted. Within 3 weeks of the plan being approved, creditors received a dividend of 22c/$ and the business reduced its unsecured debt by $330,185 (45%). As a result of a change in business practices and the small business restructure process the company is now operating successfully. COMPANY FINANCIAL PROFILE PRIOR TO RESTRUCTURE ATO debt $723,808 Director had received Director Penalty Notices for unpaid SGC superannuation and PAYG withholding tax - $228,166 (personally liable) ATO had commenced proceedings to wind up the company, but had not filed with the Court at the time of our appointment COMPANY PROFILE AFTER SBR RESTRUCTURE Restructure Plan accepted by creditors Director paid Director Penalty Notices - $228,166 (from sale of property) – outside of SBR plan Director contributed $165,457 for SBR proposal SBR dividend 22c/$ Debt reduced by $330,185 (45%) Improved wellbeing of director Employee job security DEBT PERMANENTLY WRITTEN OFF = 45%

Superannuation and Bankruptcy

By Barry Hamilton • 15 Apr, 2024
What happens to my superannuation if I become bankrupt? As bankruptcy will result in available assets being realised it is important to consider the status of your superannuation balances. Superannuation is not a personal asset and is held on trust for you and governed by superannuation law and for this reason it is not available to your trustee but is also protected by section 116(2)(d) of the Bankruptcy Act 1966 . It is important that you do not withdraw superannuation as a lump sum during bankruptcy as it would become a personal asset and available to your estate. If you entered into pension phase during bankruptcy, then the annual payment would be assessed as part of your income and you may be required to make a contribution to your estate. Can I have a self-managed super fund during bankruptcy? Once you become bankrupt you can no longer be trustee of your own super fund, if you are a director of a company that is trustee of your superfund you can no longer act in that role as a bankrupt cannot be a director of a company. If you have a self-managed superfund you should speak to your financial advisor prior to becoming bankrupt so proper planning can be put in place in order for your superannuation to remain protected. Does bankruptcy affect any life insurance?  Section 116(2)(d) of the Bankruptcy Act 1966 provides that policies of life insurance held by the bankrupt and/or their spouse or de facto partner are exempt property where the proceeds of such policies are received on or after the date of bankruptcy and become protected money. This can also extend to property purchased with protected money so it remains unavailable to a bankruptcy trustee to realise. Protection will only be available on or after the date of bankruptcy - not before. If insurance proceeds or superannuation is received before bankruptcy and placed in a bank account or used to purchase real estate it is not afforded the protection of being exempt property and will be available to creditors. Please do not hesitate to contact our firm for a free, initial confidential consultation to discuss your options available.

What happens if I receive an inheritance during bankruptcy?

By Barry Hamilton • 15 Apr, 2024
At the date of bankruptcy all of your divisible property vests in your trustee. Divisible property is all property except excluded items such as tools of trade, principal means of transport (both up to threshold limits) and household furniture. As bankruptcy normally operates for three years and one day section 116(1)(a) of the Bankruptcy Act 1966 deals with property acquired by you after the date of bankruptcy and before your discharge date. Section 116(1)(a) of the Bankruptcy Act 1966 devolves after acquired property in your estate and is therefore payable to the trustee. If your rights to receive property from a deceased estate accrue during this period then the right is claimed by your trustee. Even if the estate was not finalised until after the date of discharge the right to receive the entitlement accrues prior to the date of discharge and therefore forms part of your estate. A bankrupt is required to disclose all property and failure to report a deceased estate may result in: Your bankruptcy being extended up to eight years. Prosecution due to failure to disclose asset. Section 265 of the Bankruptcy Act 1966 provides a penalty of up to one years imprisonment for not disclosing an asset to a trustee. Please do not hesitate to contact our firm for a free, initial confidential consultation to discuss your options available.

Common Questions around Bankruptcy

By Kiara Calvert • 15 Apr, 2024
1. Who can go bankrupt? Bankruptcy only applies to individuals and not companies. In cases where businesses operate as sole traders or partnerships, only the individual/s can become bankrupt, not the business entity itself. 2. What is bankruptcy? It’s a legal process where a person is declared bankrupt if they are unable to pay their debts due to creditors and a bankruptcy trustee is appointed to manage the individual’s bankruptcy. 3. Can I earn income whilst I’m a bankrupt? There is no limit to the amount of income that you can earn while you are a bankrupt, however, if your after tax income exceeds a set amount, you may have to pay contributions from your income to your trustee. This amount changes with the number of dependents you have. 4. Will I lose my job? Being bankrupt doesn’t normally stop you from working, but there are restrictions to be aware of: · Some trades and professions restrict you from working if you are a bankrupt; and · Whilst you are a bankrupt you can’t be a company director or officer. 5. Can I keep my car? Being a bankrupt doesn’t always stop you from owning a vehicle, however, there are some restrictions. In order to keep your vehicle: 1. The value of the vehicle must be below a set amount; 2. The vehicle is your primary means of transport; and 3. You maintain repayments on your vehicle if it is under finance. 6. Can I keep my house? That depends on a few factors including: How much is owed to the bank; Your financial interest in the house; and The rights of your partner or co-owner 7. How long does bankruptcy normally last? The rule is three years and 1 day, however in some cases early discharge may be available.

My Business is Struggling what can I do?

By Kiara Calvert • 15 Apr, 2024
Lets face it, owning a business in the last couple of years has been tough – the covid-19 pandemic, rising interest rates and escalating costs across various sectors, including labour, materials, rent and utilities. These factors have made it difficult for a business to maintain financial stability and profitability. If your business is struggling, you should ask yourself one question? Are your accounts and lodgements up to date? If not, you should contact your accountant to bring these lodgements up to date and to see if they can assist you in managing your debt and achieving financial viability. Secondly, if your business is still struggling you should seek advice from a professional advisor to discuss your specific circumstances and options available. You should avoid a head in the sand approach. Ignoring financial difficulties will only make the situation worse. When you’re dealing with financial stress, it can be difficult to see the bigger picture and make rational decisions. Seeking guidance from an independent and trustworthy advisor can provide clarity and perspective, helping you make informed choices about your business. Be proactive in seeking guidance as earlier engagement often provides more options available and can help alleviate stress by providing solutions and a roadmap for dealing with your financial situation. Don’t delay in seeking help, the time to act is now! Please do not hesitate to contact our firm for a free, initial confidential consultation to discuss your options available.
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