ASIC review of simplified debt restructuring for small business shows a high success rate

Two years on from the introduction of a simplified debt restructure process, an ASIC review has found most participants are still operating.

The majority of small businesses which took on a new, simplified debt restructuring process were continuing to operate, a report by the corporate watchdog has found.

The Australian Securities and Investments Commission’s report reviewed reforms introduced on January 1, 2021, which simplified the small business debt restructuring process and created a new type of registered liquidator.

Importantly, it was the first type of formal insolvency appointment which left the control of the insolvent company in the hands of the directors – not the appointed registered liquidator. Also, a restructuring proposal period of 20 business days commenced once the company proposed a restructuring plan,

“The majority of companies (66 per cent) where a restructuring plan was effectuated or was ongoing, appear to be continuing to operate their business,” ASIC said in its review of small business restructuring report.

The review found that the Australian Taxation Office was a creditor in 89 per cent of companies which entered a restructuring plan and was a major creditor in 79 per cent of those companies.

According to the information reviewed by ASIC, there were 82 restructuring practitioner appointments between January 1, 2021 and June 30, 2022.

In that time creditors approved 72 – or 92 per cent – of the 78 sent to affected creditors where a restructuring plan was accepted. Of those, 47 plans were effected, one plan was terminated and 24 plans were ongoing.

However, ASIC noted the scheme had an initial slow uptake.

That could have been because the process was too complex, the eligibility threshold of $1m owing to creditors was too low and the requirement to comply with taxation law lodgement requirements prevented companies that might otherwise be candidates for restructuring, return to viability.

The main states where restructuring practitioner appointments were held during the review period were New South Wales (44 per cent), Victoria (34 per cent) and Queensland (12 per cent).

The main industry groups for restructuring practitioner appointments were accommodation and food services (21 per cent), construction (20 per cent) and retail trade (16 per cent).

Originally published as ASIC review of simplified debt restructuring for small business shows a high success rate