Small Biz Restructuring is good for the economy (but make sure you’re tax compliant!)

At the recent Association of Independent Insolvency Practitioners (AIPP) conference, delegates heard about the positive impact SBRs have had on the economy. We learned that SBRs provide much better returns than Creditor Voluntary Liquidations (on average, 23 cents in the dollar), they’re tax compliant, and they preserve jobs.

According to the latest Alares Credit Risk Insights, SBR appointments remain high because of ongoing pressure from the ATO. SBRs account for an increasing percentage of all insolvency appointments and are trending towards 1-in-5, representing a significant increase on previous years.

Last month we witnessed an interesting phenomenon – around 300 Small Business Restructuring (SBR) appointments were made in just two days. When you consider the usual number is between 15 and 40 SBR appointments a day, there’s obviously something going on behind the scenes that’s led to this spike. And it’s probably no coincidence the surge comes after the massive increase in Director Penalty Notices (DPNs), warnings and garnishee notices being issued by the ATO. In 2023-24, the ATO issued 26,702 DPNs worth $4.4 billion (a 50% jump from FY2022-23) and 6,150 garnishee notices. And it doesn’t look like it’s letting up any time soon.

However, don’t think doing an SBR is automatically going to get you a free pass from the tax office. While the majority of SBRs undertaken since the regime was introduced have been getting approved by creditors (particularly the ATO), the tax office’s attitude has been changing. There are now several reasons it has been voting against certain SBR plans, including:

• Director/shareholder loan accounts.
• Trade creditors (but not the ATO) being paid down prior to the appointment of the SBR practitioner.
• Poor compliance history.

That last point can be the straw that breaks the camel’s back. In March we reported on the ATO shifting its focus to compliance history – and it’s now more important than ever to have a good history. It’s one of the indicators the tax office uses to determine viability of a company. So, if the business doesn’t have good compliance history, it can be a red flag. That’s why it’s crucial to be up to date with:

• Activity statements
• Tax returns
• Superannuation returns and payments.

We have 17 Small Business Restructuring Practitioners on our team, with vast experience handling SBRs across a wide range of industries. On average, our clients have achieved a debt saving of up to 80%, with dollar returns to creditors ranging between 15 and 40 cents. In the past 12 months, the amount of debt slashed for small businesses is around $18.8 million. We’re here to help guide small business through the process and achieve the best possible outcome – including getting your business back on track.

If you’re wanting to discover more about Small Business Restructuring and how it can help you and your business, head to https://www.restructuring.com.au/. And click this link to download a free SBR guide: https://www.jirschsutherland.com.au/brochure/JS_SBR_2024.pdf

Chris Baskerville
Partner
Jirsch Sutherland