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Turnaround & Restructuring FAQs

Who has control of the company during a restructuring?

The directors of the company have control of the company’s business, property and affairs.

The restructuring practitioner acts as the company’s agent.

What's the difference between a restructure and insolvency?

Insolvency means the business can't pay its debts when they fall due. Potential causes of business insolvency include poor cash management, excessive expenditure to support growth, lower than expected sales performance, and increased competition. Left unaddressed, insolvency can lead to insolvency proceedings and legal action like liquidation. Company directors have a duty to prevent insolvent trading, meaning businesses need to address the prospect of insolvency in a timely manner.

In contrast, a business restructure isn't specifically concerned with the inability to pay debts when they become due. Restructuring involves the reorganising of the business to enhance profitability, so it could help businesses who are at risk of becoming insolvent. The key difference is a restructure is a plan to improve an organisation's profitability, while insolvency describes a particular state the business is in: unable to pay its debts as they fall due.

What does a business turnaround mean?

When a business undergoes a turnaround, it shifts from negative to positive – usually facing significant financial (or even survival) challenges – towards a positive financial future and sometimes major profitability. Like restructuring, turnarounds are a purpose driven process which involve a plan, review of strategy and execution of a new vision. For example, it could involve getting new investment.

Turnarounds are usually triggered due to serious challenges in processes, financial management, market conditions, and other factors that lead to the decline of the business. They're typically short-term processes designed to enhance business performance for the longer term.

What are the eligibility criteria for restructuring?

To be eligible for a restructuring, on the day on which the restructuring practitioner is appointed:

  • Total liabilities of the company must not exceed $1 million
  • No person who is a director of the company, or who has been a director of the company within the 12 months before the appointment of the restructuring practitioner, has been a director of another company that has been under restructuring or subject to the simplified liquidation process within the period of the preceding seven years, unless they are exempt under the regulations
  • The company must not have undergone restructuring or been the subject of a simplified liquidation process within the preceding seven years

The exemptions prescribed by the regulations are:

  • If, the other company is a related body corporate of the company; and
  • The other company is, or has been, under restructuring - the restructuring practitioner for that company was appointed no more than 20 business days before the day on which the restructuring of the company for which the eligibility criteria are to be met began
  • The other company is, or has been the subject of a simplified liquidation process – the other company began to follow the simplified liquidation process no more than 20 business days before the day on which the restructuring of the company for which the eligibility criteria are to be met began.

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