Small Business Restructure success story: revitalising a small business

A Small Business Restructure of the Company provided the opportunity for the Company to continue trading after compromising a material statutory taxation debt and seventeen (17) staff remained employed. 

The Company operates a technology data recovery business at multiple locations across Australia. The Company has one director. 

The Director approached the our Restructuring and Recovery division and advised that the Company’s financial difficulty is attributable to the following: 

1. In November 2020, the director incurred personal liabilities owed to the Australian Taxation Office (ATO) as a result of a related entity being placed into liquidation. The director’s only source of funding was drawings paid by the Company in the form of a director loan account. The director intended to utilise the drawings to pay down the debt. 

2. The director invested most of his drawings into Crypto Currency during 2020 intending to use any return on investment to pay his debts and reinvest into the Company’s business. The endeavor was not successful and resulted in a loss.  

3. The Company’s revenue was used to grow the business further. Most of the revenue was invested back into the business by way of marketing through new forms of social media and video marketing, as well as acquiring new plant and equipment. 

4. The Company incurred rising manufacturing costs and outlays. The director was reluctant to pass these costs on to customers at the time and decided to absorb them in the hope the business and customer base would continue to grow, at which point, he could increase pricing. The change to pricing structure was not implemented until February 2023. 

The director has acknowledged the Company debts (specifically statutory debts owed to the ATO $600k and another minor unsecured creditor $2k) would not have accumulated if it were not for the circumstances above. 

It was the director’s position that a Small Business Restructure of the Company will ensure the Company’s long-term survival. The director provided a cashflow forecast for the twelve (12) months following the appointment of a Restructuring Practitioner and was confident that the conditions of the plan, if accepted, would be met. It was my position that the continued trade of the Company and the acceptance of the plan would enable a greater return to creditors than if the Company were placed into liquidation.  

The plan was accepted by creditors with the director to make monthly instalments from the trading income of the business. The benefit of the Small Business Restructuring was a significant compromise on the overall debt position which the Company had to pay. This meant the Company could continue to trade and employ, whilst also giving unsecured creditors a greater return than they would have received if the Company had been placed into liquidation and ceased trading.

If you or your clients have a company which fits the eligibility criteria of a Small Business Restructure, please contact our Restructuring and Recovery experts who will be happy to assist you or your client in navigating the SBR landscape.  

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.