What Does Small Business Restructuring Cost?

Most insolvency appointments are charged on time. Small Business Restructuring was designed differently, and the remuneration splits at the moment creditors vote.

The restructuring phase covers everything up to and including the vote: reviewing the position, helping develop the plan, preparing the declaration about the company's affairs, and putting the proposal to creditors. It is a fixed fee, approved up front under r 60-1B of the Insolvency Practice Rules, and it is payable whether or not the plan is accepted.

The plan phase covers administering an accepted plan: receiving the payments, adjudicating claims, and distributing to creditors. It is set as a percentage of the contributions and distributions made under the plan (r 60-1C) — typically 5 to 10 per cent. That makes it genuinely contingent — if creditors reject the plan there are no plan payments, so there is no plan-phase fee.

So the answer to the question directors actually ask — is the fee contingent on the vote — is: partly. The upfront work is not. The administration of the plan is.

Directors often conflate these, and it makes the decision harder than it needs to be.

1. 1.The professional fee. What you pay the restructuring practitioner across both phases, as set out above.
2. 2.The plan payments. What creditors actually receive under the plan. This is not a fee. It is the compromised debt, paid from trading over the plan period.

The second number is usually much larger than the first, and it is the one that determines whether creditors accept. A plan is a commercial proposition: creditors are comparing what you are offering against what they would get if the company were wound up instead.

The single biggest variable is the state of your records. A director who arrives with reconciled accounts and current lodgements is a materially cheaper engagement than one who does not, and the difference is usually larger than any quote-shopping saving.

Three costs sit outside the practitioner's remuneration and catch directors out when they budget only for the quoted fee.

1. 1.Bringing lodgements current. If BAS or returns are behind, that is accounting or bookkeeping work, billed by your accountant, and it has to happen before an appointment is worth making.
2. 2.Funding employee entitlements. Wages, leave and superannuation that are due and payable — unpaid superannuation guarantee charge included — have to be paid in full (s 453C(1)(a); s 596AA). That is real cash, and for a company with staff it is often larger than the practitioner's fee.
3. 3.Your own legal or tax advice. A practitioner acts in the restructuring, not as your adviser. Where there are guarantees, disputed assessments or a related-party position to sort out, that is separate.

None of these are hidden — but a quote for the restructuring phase is a quote for the restructuring phase, and the total cost of getting a company through this process is usually larger than that one number.

You pay the restructuring-phase fixed fee. That fee is for running the process to a vote, not for winning it (r 60-1B), and your engagement letter should say so in terms. What you do not pay is the plan-phase remuneration, because it is a percentage of payments under a plan and there is no plan.

This is the honest risk in the decision, and it is worth being clear-eyed about. If the plan is not fundable from trading, creditors will see that and decline, and you will have spent the upfront fee to arrive at liquidation later than you would have otherwise.

Which is the argument for the assessment step happening before the appointment, not after — the question "is a plan realistically fundable here" should be answered before anyone incurs a fee.

Get the restructuring-phase fee in writing before you commit, and ask separately how the plan-phase percentage is calculated and on what — the figures above are indicative ranges, not a quote. Make sure you know which of the two costs each number refers to — the professional fee or the plan payments. If your accounts are behind, bringing them current is the cheapest thing you can do to reduce the total cost of whatever path you take. And if you are not confident the business can fund plan payments, resolve that question before paying anyone.