What is a Business Restructure?
A business restructure is a formal process where the assets and goodwill of a financially distressed or unsustainable business are transferred to a new entity for a fair commercial price. The assets are valued, sold to the new entity, and the funds are paid to the old company. These sale proceeds are then distributed to creditors based on priority and security rules.
Where appropriate, the new trading entity re-employs staff and takes on responsibility for employee entitlements, other than superannuation. Once the transfer is complete and all obligations are dealt with, the old company is placed into liquidation.
A restructure can provide a fresh start for a viable business while ensuring the process is carried out legally, transparently, and in compliance with the Corporations Act.
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When could I consider Business Restructure?
A director may consider a business restructure when the company is no longer able to pay its debts in full, or when trading under the existing structure is no longer viable. This may occur even when the underlying business is still strong or the director wants to continue operating in the industry.
A restructure can also be suitable when negotiations with creditors — whether formal or informal — are not possible or are unlikely to succeed.
In these situations, a business restructure allows the director to transfer the physical assets and goodwill of the business to a new trading entity for fair value, rather than entering into a debt restructure or prolonged negotiation. This approach can preserve the business, protect jobs, and provide a more sustainable operating structure moving forward.
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Business Restructuring - Is it legal?
A business restructure is legal when it is carried out properly, transparently, and for genuine commercial reasons. There is often confusion because some people associate restructuring with phoenix activity. However, the law draws a clear distinction between the two.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 specifically separates illegal phoenix activity from restructures undertaken out of commercial necessity. A commercial necessity restructure aims to preserve a viable business, protect jobs, and achieve a fair outcome for creditors. When supported by proper valuations, documentation, and compliance with the Corporations Act, a business restructure is entirely lawful and recognised as beneficial to both the economy and the broader community.
A restructure becomes illegal only when directors deliberately avoid liabilities or transfer assets for less than fair value. When completed correctly and for the right reasons, restructuring is a legitimate and widely used solution.
Contact the de Jonge Read® team today for a no-cost, no-obligation discussion to understand your options today.
