Qualifications for debt restructuring
While most company directors are aware of new legislation, effective from 1 January, allowing them flexibility to restructure debts while retaining control of their businesses (see “New restructuring laws help struggling business” in our January newsletter” at www.macksadvisory.com.au), many are unsure of whether their companies qualify to appoint a Small Business Restructuring Practitioner (SMRP) that will enable the process.
Not only that, many business owners facing possible insolvency as government support measures are being wounded down are uncertain whether appointment of a SMRP is their best option, and how they can determine this.
If indeed an appointment is considered their best chance for survival, it’s also clear many business owners are unsure how to make the most of the opportunity.
Crucial to success is that directors’, having established they’re qualified to make the appointment under the new legislation, also understand they have only up to 20 business days from when the appointment is made, to devise with the SMRP’s help, a restructuring plan and proposal to present to creditors, who will then have no more than 15 business days to accept or reject it.
Time is short
Companies with liabilities of less than $1m excluding employees’ entitlements have only until the end of next month to apply for “temporary restructuring relief”.
If your company is severely financially stressed and you and/or your business adviser are unsure of whether it qualifies for relief, we suggest you make a start to resolve the issue by reading the article referred to above.
Accountants or other business advisers, unsure of a client’s eligibility for relief from answers to questions they may have put to them, can conduct searches of the Australian Securities and Investments Commission (ASIC) data base to help with that determination.
However, because the relief legislation allows little time between appointment of a SBRP and a company’s presentation to creditors of its restructuring proposal, it’s virtually pointless directors agreeing to make the appointment unless they have first ensured any due BASs and tax returns have been lodged and payments of employee entitlements are up to date.
While all tax payments don’t have to be made before an appointment, returns and statements must be current so the SBRP can finalise advice on a restructuring plan that takes account of all the company’s liabilities.
Accountants can greatly increase success rates with the SBRP process by impressing upon clients the necessity not only to calculate what if anything they owe employees, but to ensure they can pay the debt.
If superannuation payments are in arrears meeting this requirement may require completion of a Superannuation Charge Guarantee (SCG) Statement for submission to the Australian Taxation Office.
Failure to meet obligations to employees is common among companies in financial difficulty and will be among the most common reasons for companies’ disqualification for relief under the SMRP legislation.
It’s a failing frequently part of the systemic failure of many businesses that don’t maintain effective up to date records that could make all the different between being able to seize this opportunity for relief and survival, or seeing it slip through their fingers.
However, if yours is a well-run business, sound at its core but nonetheless facing insolvency essentially because of the COVID-19 pandemic, you should be in immediate touch with your accountant for advice on options for its possible survival.
Tax break for SMEs
Legislation is before Federal Parliament to make tax-free certain SME grants relating to government programs for recovery from the pandemic.
The grants announced on 13 September last year as being non-assessable, non-exempt income for tax purposes in Victoria, are to be similarly regarded upon application as non-assessable, non-exempt income in other states and territories from then until 30 June this year.
Only entities with an aggregated turnover of less than $50m will be eligible for this tax concession and the grant payment must have been made under a government program that responds directly to economic impacts of COVID-19.
The program must also be one designed to support businesses that have been or are subject to certain restrictions on their operations including public health directives applying to geographical areas in which they operate.
This tax concession will boost the cash flow of eligible businesses that will continue to be able to claim deductions for appropriate expenses paid for with grant money.
From 1 July last year the tax rate was cut from 27.5% to 26% for businesses with a turnover of less than $50m and is due to drop to 25% for the 2021-22 financial year.