Not so fun, but more important fact, 7 years is how long a director must wait in between Small Business Restructures
Directors are restricted to using the Small Business Restructuring (SBR) process only once every seven years.
As many advisors are aware, not all companies are eligible for the SBR process. There are specific criteria that must be met, such as having liabilities below $1 million, keeping employee entitlements current, and ensuring that all tax lodgements are up to date. Additionally, directors who have previously used the SBR process or undertaken a simplified liquidation face further restrictions.
A company cannot enter the SBR process if its directors have been involved in a company that has undergone restructuring or a simplified liquidation within the past seven years. This restriction also applies to former directors who resigned within the past 12 months. Essentially, the exclusion follows the director, preventing them from initiating more than one SBR within a seven-year period.
It’s important to note that this restriction does not apply to creditors’ voluntary liquidations generally—it only applies to the use of the simplified liquidation process.
Exemption for Group Companies
However, there is an exemption that allows a director to use the SBR process for more than one company if they are part of the same corporate group. According to the Corporations Regulations, if one company starts the SBR process, a related body corporate can also begin restructuring, as long as the process for the other company begins within 20 business days of the first.
This exemption allows multiple related companies to initiate the SBR process simultaneously, or at least within a 20-business-day window of each other. But what exactly qualifies companies for this exemption?
Related Body Corporates
The Corporations Regulations define a related body corporate according to Section 50 of the Corporations Act 2001 (the Act). A body corporate is considered related if it is:
- (a) A holding company of another body corporate; or
- (b) A subsidiary of another body corporate; or
- (c) A subsidiary of the holding company of another body corporate.
This definition of related body corporate is distinct from the definition of a related entity under Section 9 of the Act. This distinction is crucial when determining whether companies with the same directors can enter the SBR process at the same time.
Conclusion
Directors with multiple companies should be mindful of the restriction that limits them to using the Small Business Restructuring (SBR) process only once every seven years. Although there is some flexibility for directors to initiate multiple SBRs for group companies simultaneously, this exemption is strictly limited to companies that qualify as related body corporates. Therefore, directors should carefully assess their corporate structure and relationships to ensure they meet the eligibility criteria for this exemption.
