The new class of registered liquidators (the SBRP) is explained.  But there has been a disappointing uptake of the new debt restructuring process – only half a percent (0.5%) have used the new process.

In response to the COVID-19 pandemic, the Australian Government introduced insolvency reforms for small businesses, which came into effect on 1 January 2021.

A significant part of those reforms was the introduction of a new class of registered liquidator, to assist eligible companies with the new debt restructuring process.

They are known as a Small Business Restructuring Practitioner (SBRP).

In order for a company to benefit from this debt restructuring process, company directors are required to make a declaration that their company is eligible to access the new process.

The eligibility criteria for appointing a SBRP, assessed at the time the restructuring plan is proposed to creditors, is as follows:

• the company has (or has substantially) complied with the requirement to have paid the entitlements of employees that are due and payable; and

• the company is required to have given notices, statements, returns, applications or other documents that fall within the requirements of the Income Tax Assessment Act 1997.  Eg, lodge all tax returns, activity statements and superannuation guarantee charge (SGC) statements, that are due to be lodged.

Additionally, the directors’ declaration of eligibility must be published on ASIC’s Published Notices Website and a copy of the declaration must be provided to ASIC no later than 5 days after it has been made.

It follows that should this process be performed within ASIC’s guidelines, the appointment of a SBRP will then proceed.

Though SBRPs are considered as a new class of insolvency practitioners, appointees must still be registered liquidators.

However, the qualification requirements are less for a SBRP.  Unlike the existing classes of registered liquidators, an applicant SBRP is not required to have been engaged in at least 4,000 hours of relevant employment at a senior level in the last 5 years.

The new class of SBRP can only act for a company intending to submit a restructuring plan.

The appointment of a SBRP cannot be revoked, creditors cannot vote to appoint a different SBRP, and two or more SBRP may be appointed to act in a ‘joint and several’ capacity.

In a nutshell, the role of the SBRP is as follows:

• to assist a company with making a restructuring plan;
• receiving money from, and holding money on trust for a company;
• distributing money to creditors in accordance with the restructuring plan;
• providing advice to the company about the restructuring; and
• making a declaration to creditors about the restructuring plan proposed by the company.

It is important to note that the SBRP acts as the company’s agent.  The directors of the company maintain control over the company’s property, business and affairs – which is a significant point of difference from the traditional role of a voluntary administrator or liquidator.

In short, SBRPs are tasked with a predominately advisory role.  The powers given to a SBRP fall under the Corporations Act 2001, and include:

• making determinations on whether the restructuring should be terminated;
• resolving disputes regarding the amount of a creditor’s debt disclosed in the restructuring proposal statement; and
• giving consent to transactions or dealings outside of the ordinary course of business for the company.

It is also important to note that SBRPs may only realise the property of a company and distribute the proceeds to creditors upon the request of, and with the consent of, the company’s directors – another stark contrast from the traditional role of a voluntary administrator or liquidator.

The benefits of this measure are yet to be fully realised.  The new restructuring process provides a flexible alternative to liquidation; and cost savings over voluntary administration.

However, the Government would be disappointed with the low uptake of the new process.

Between 1 January 2021 and 5 May 2021, there have only been 8 debt restructuring processes commenced (on a National basis).

But during the same time, the total number of corporate insolvency appointments was 1,464.  

Meaning that the new debt restructuring process accounts for only 0.5% of insolvency appointments.