The Business Restructuring Process

Editorial Team

The Business Restructuring Process

Businesses all over the world struggle with financial challenges, and dealing with the issue may require major organisational changes. Directors often wonder how can management changes and organisational restructures affect the business. The good news is that an effective restructuring plan and getting business liquidation help can impact the business in all the right ways. With professional advice and strong planning, business restructuring can help your company reorganise and recover from financial strain. Ultimately, this protects employees and customers, and it allows companies to manage liabilities without resorting to administration or liquidation.

Business Restructuring in Australia

Small business restructuring is a formal process that allows insolvent companies to manage their financial difficulties and avoid administration or liquidation. Like the name suggests, restructuring involves reorganising the company to eliminate waste and repay the money that creditors are owed. Depending on your situation, restructuring may involve selling assets, selling parts of the business, changing management, downsizing personnel or making operational and legal changes. Combined, these things increase the chance that your company will be able to meet its obligations and continue trading without the need for liquidation.

During the restructuring process, the company’s directors remain in control of the business. The appointed restructuring practitioner will act as your agent and work alongside you to develop a plan of action moving forward.

Eligibility Criteria for Business Restructuring

Business restructuring is designed to provide small and medium businesses with an effective tool for avoiding liquidation. To ensure restructuring isn’t misused, the eligibility criteria are applied strictly. Determining your eligibility is one of the first tasks of your restructuring practitioner. To be eligible, your company must:

  • Be insolvent or likely to become insolvent
  • Owe liabilities less than $1 million
  • Have paid, or have substantially paid, employee entitlements
  • Have met tax obligations

In addition, the company, as well as anyone who has served as a director of the company in the last 12 months, cannot have used business restructuring in the past 7 years.

The Business Restructuring Process

A company that meets the eligibility criteria can resolve to enter into restructuring. To commence the process, the directors of the company must appoint a practitioner in writing. From there, the business restructuring process only contains a few simple steps:

  1. The directors of the company resolve to appoint a restructuring practitioner
  2. The restructuring practitioner works alongside the directors to assess the business’ finances and operations
  3. The restructuring practitioner develops a proposal for how to manage the business’ assets, debts and liabilities
  4. At a creditors’ meeting, the proposal is presented for approval. The proposal will be approved if more than 50% of of the creditors (by value) vote in favour of the plan
  5. The plan is implemented by the restructuring practitioner

No two restructuring plans are alike. The experts working with your business will assess your position and look for areas where money can be saved. This may involve selling part (or all) of the business, selling business assets, making personnel changes or refinancing outstanding debts. Ultimately, the goal is to reduce the business’ liabilities and reach an agreement whereby the creditors allow the business to continue trading.

The Outcomes of Business Restructuring

The outcomes of business restructuring vary widely. In most cases, the restructuring practitioner will recommend major changes to the business’ finances, personnel, operations or legal structures. While these actions can be drastic, they’re the best chance you have to save your company from being placed into liquidation.

So how can management changes and organisational restructures affect the business? There are three major impacts:

  • Better outcomes for creditors – The purpose of restructuring is to develop a plan that allows the business to repay its creditors without the need for liquidation. An effective restructuring plan ensures that creditors receive more of their money than if they were to apply to have the business wound up.
  • Improved chance of continuing to trade – Insolvent companies often find themselves facing liquidation. Entering into a restructuring agreement can help avoid the need for this and allow the company to continue trading as normal.
  • More efficient business operations – Restructuring practitioners often save companies by eliminating inefficiencies. That may require downsizing personnel, making changes to management or selling parts of the business that aren’t making money. These major changes will ultimately result in a more streamlined business that is ready to withstand the financial challenges of continued operation.