Debt Restructuring
By restructuring debt, businesses can improve cash flow, reduce financial pressures, and create a pathway to recovery. Here are the primary debt restructuring options available for businesses.
At Thryvv, we act for you.
Have you received a Director's Penalty Notice from the ATO?
Director Penalty Notices ("DPN") means the ATO has made the Director personally liable for the ATO debts of the Company. If these notices are issued to a director, then we will need to move quickly to avoid further personal liability for tax debts. More info.
Formal Debt Restructuring Options
01 Small Business Restructure ("SBR")
Small Business Restructuring is a structured process, falling under the Australian Corporations Act 2001, designed to help eligible small businesses reorganise their finances and emerge from financial distress. The SBR process provides a pathway for businesses with unsecured liabilities of less than $1 million to negotiate with their creditors, including ATO debts. They do this by making an offer to the creditors that is a better return to them than through any other mechanism (i.e. liquidation).
Benefits of an SBR over other restructuring formats:
- Offer to settle for as little as 20 cents in the dollar.
- Pay out debts over terms of up to 3 years, interest free..
- May avoid director's becoming personally liable for debt.
- Day to day management stays with the directors.
When to consider:
- The business meets the eligibility criteria for an SBR.
- Unsecured debts of at least $75,000 (this is where the economics of the process starts to make sense).
- There is a reasonable prospect that the business will be successful if debts can be negotiated.
While the outcome of an SBR is ultimately up to the creditors, SBR's are a great tool as they mitigate most of the personal insolvency risks for the director.
02 Pre-pack Restructuring
Unlike an SBR, there can be personal risks and consequences for director's of a business that undertake a Pre-pack Restructure, such as claims for insolvent trading or claims to collect on Loan accounts.
The pre-pack insolvency arrangement provides a chance to rescue a business without incurring the expenses and disruptions associated with voluntary administration. This option exists when the business is not eligible for an SBR.
There is a lot of risk associated with Pre-pack Restructuring and the process requires a significant amount of pre-planning. There are also a number of firms that conduct Pre-pack Restructures in a manner that may place the director at risk of action by the Australian Securities and Investments Corporation or other creditors, so it's best to ensure you use a reputable firm, like Thryvv.io, to assist and effectively identify and manage the risks.
When to consider:
- The business does not meet the eligibility criteria for an SBR.
- There is a reasonable prospect that the business will be successful if debts can be resolved.
03 Practitioner Facilitated Restructuring
Unlike an SBR, there can be personal risks and consequences for director's of a business that undertake practitioner facilitated restructuring, such as claims for insolvent trading or claims to collect on Loan accounts.
There are a range of practitioner facilitated Restructuring options, which generally involve appointing an Company Administrator to operate the business. The directors can then propose to continue operating the business under a Deed of Company Arrangement, or other form of offer.
This option is the most risky of the restructuring options as the decision making is taken out of the director's control and put into the Administrator's hands. Depending on the type and structure of the debt, practitioner facilitated restructuring can also have unintended consequences, so proper prior to appointing the Administrator is essential.
When to consider:
- The business does not meet the eligibility criteria for an SBR.
- There is a reasonable prospect that the business will be successful if debts can be resolved.
- There are issues that make informal options and a Pre-pack Restructure unviable (for example, a time constraint).
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With more than 15 years’ experience in both financial consultative roles and in corporate level leadership, we can identify options to help your business achieve financial independence with our business recovery services.
Informal Debt Restructuring Options
Debt Refinancing
Debt refinancing involves replacing existing debt with new debt under more favourable terms. This option can lower interest rates, extend repayment periods, or consolidate multiple debts into a single payment, making it easier to manage financial obligations.
When to Consider:
- Interest rates on existing loans are high.
- Cash flow issues are making it difficult to meet current repayment terms.
- Consolidation would simplify multiple debt obligations.
Payment Plan Negotiation
Negotiating new payment terms with creditors can provide temporary or permanent relief. This might include reducing monthly payments, deferring payments, or extending the loan term.
When to Consider:
- Temporary cash flow issues are affecting the ability to meet current payment terms.
- Creditors are willing to collaborate on alternative arrangements.
Informal Negotiation
Informal agreement between the business and its creditors to restructure debt without entering formal insolvency proceedings. This option is often quicker and less costly than formal processes.
When to Consider:
- There is a cooperative relationship with creditors.
- The business can resolve its financial issues without legal or insolvency intervention.
The Role of the Director's Advocate in Debt Restructuring
Navigating the complexities of debt restructuring can be daunting for business leaders, which is where a Director’s Advocate plays a crucial role. Acting as a trusted advisor, the Director’s Advocate works closely with company directors to guide them through the process, ensuring informed decision-making and compliance with legal obligations.
When appointed, a Director's Advocate will work to:
Control the Process
Arm the director's with an understanding of the process, helping them assess restructuring options and choose the best path forward for the business.
Solve the Underlying Problems
Implement measures to solve, or at least mitigate, underlying issues and foster good decision making.
We also Identify areas where there may be personal risk for the directors or unintended consequences for the business, and where possible, mitigate these risks.
Advocate for the Business Owner
Advocating for the directors when actions are taken against them.
Act as an intermediary between the business and creditors to secure favourable terms and maintain positive relationships.
By partnering with a Director’s Advocate, businesses gain a knowledgeable ally dedicated to achieving the best possible outcomes, minimizing disruptions, and positioning the company for long-term success.
At Thryvv.io, we act for you.
Thryvv.io acts for you, the business owners and directors. With more than 15 years’ experience in both financial consultative roles and in corporate level leadership, our role is to identify the possible exit opportunities, develop a strategy and help you manage the process throughout, working for you to get the best possible outcome in business recovery.
When appointed, we work with you to do the following:
- Assess - Review the business' position and identify the issues that affect the Company and it’s directors personally
- Resolve - Work with the director’s to resolve the issues identified as much as possible.
- Structure - Structure, formulate and compile an exit plan.
- Manage - Manage the process in line with the plan, on your behalf, to allow you to focus on the day to day operations of the business.
For engagements where an Insolvency Practitioner is required, we will select one that we believe will yield the best outcome for the Company and its directors in the circumstances.
We work closely with a large number of Practitioners, and as such get access to discounted costs. This often means that we can offer director centric services for the same or very similar costs as going directly to them.