Not so fun, but more important fact, 7 years is how long a director must wait in between Small Business Restructures

How Often Can a Director Use the Small Business Restructuring (SBR) Process?

Directors are restricted to using the Small Business Restructure (SBR) process only once every seven years.

As many advisors are aware, not all companies are eligible for the small business restructure 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 small business restructure process or undertaken a simplified liquidation face further restrictions.

A company cannot enter the small business restructure 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 small business restructure 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 small business restructure 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.

Useful links to understand the 7-year Rule

• ASIC – Restructuring and the Restructuring Plan
  This page offers comprehensive details on the SBR process, including eligibility criteria, the role of directors, and the function of the restructuring practitioner.
• Australian Government – Simplified Debt Restructuring: A Factsheet for Small Business
  This section of the Corporations Act defines what constitutes related bodies corporate, which is crucial for understanding group company exemptions in the SBR process.
• AustLII – Corporations Act 2001, Section 50: Related Bodies Corporate
  This section of the Corporations Act defines what constitutes related bodies corporate, which is crucial for understanding group company exemptions in the SBR process.
• Australian Taxation Office (ATO) – Corporations Act 2001, Section 50
  The ATO provides a view of Section 50 of the Corporations Act, detailing the meaning of related body corporate.
• AUSTRAC – Definition of Corporate Group
  AUSTRAC outlines what constitutes a corporate group, referencing the Corporations Act’s definition of related bodies corporate.