Holiday and ATO tete-a-tete forces SBR extension

A key feature of the Small Business Restructuring (SBR) reforms introduced in 2020 can be a trap for the unwary appointee.

While the Restructuring Practitioner might be appointed he or she acts in the capacity of agent for the company.

“As to the costs of the application, SCS asked the Court to make no order as to costs.  This position was confirmed by counsel in the course of oral submissions.  Had that not been the position then it would have been appropriate to consider whether orders should be made to ensure that the company did not have to bear the financial consequences of the error by the restructuring practitioner.” Justice Craig Colvin.

Control remains with the director or directors, those responsible for the corporation’s predicament.

In iNO’s view this makes it difficult to see how a registered liquidator can feel adequately engaged given the absence of the powers enjoyed as administrator, liquidator or receiver.

Certainly in a recent case brought before the Federal Court, disengagement would seem to be why the Restructuring Practitioner erred to a degree such that it warranted judicial criticism.

In Sprys Coating Services Pty Ltd (Restructuring Practitioners Appointed), in the matter of Sprys Coating Services Pty Ltd (Restructuring Practitioners Appointed) [2024] FCA 1152 Justice Craig Colvin said WA Insolvency Solutions partner Greg Prout had taken leave and on returning spent time conferring with the ATO about outstanding superannuation guarantee charges and other matters, apparently unaware that a statutory timeline required the SCS restructuring proposal to be distributed to creditors by a deadline that had already been extended.

Instead Prout acted under the misapprehension that as long as the plan and other relevant materials were given to creditors as soon as practicable after execution of the plan then the requirements of the legislation were satisfied.

But as Justice Colvin pointed out, even the standard of “soon as practicable” wasn’t met.

“Of the two restructuring practitioners appointed to Spry Coating Services (SCS), one took responsibility for attending to the above requirements,” the judge said.

“He formed the view that provided the restructuring plan was executed within the extended period of time and the plan (and other materials) were then given to creditors as soon as practicable after execution of the plan then the relevant requirements would have been satisfied.

“He now accepts that he was incorrect in forming that view because all of the steps required to propose a restructuring plan had to be completed within the statutory period. However, for a time, his error guided his actions.”

WARNING: If such commentary from a Federal Court judge causes unease, read no further.

“Due attention to the terms of the Corporations Regulations should have revealed to a competent restructuring practitioner that the proposed restructuring plan had to be given to creditors within the proposal period,” the judge continued.

“Had that occurred, the error would have been revealed (much sooner than was actually the case). In short, the explanation for the delay was not satisfactory.

“Further, a form of open-ended ability to defer delivery of the plan while the restructuring practitioner went on leave and then conferred with the Australian Taxation Office on his return (including taking time to arrange payment of outstanding superannuation guarantee charges) was so fundamentally inconsistent with the legislative scheme that the possibility that such a course might be available should have been questioned by the practitioner.

“Even accepting that the restructuring practitioners had formed the view that the requirement was to provide the proposed restructuring plan to creditors ‘as soon as practicable’, that did not occur,” he said.

Fortunately the only two significant creditors of SCS were the ATO and the bank of Mum and Dad.

As neither would be prejudiced by the making of the orders sought Justice Colvin granted the retrospective extension.

ASIC records show that while WA Insolvency Solutions partners Greg Prout and Jimmy Trpcevsky were both appointed as Restructuring Practitioners in May of this year, Prout had carriage of the matter, authenticating the DIRRI and documents distributed to creditors and signing the Restructuring plan declaration on September 19.

Wisely, Prout did not seek to be indemnified for the costs of the application out of SCS’s assets, with the judge saying that if he had “it would have been appropriate to consider whether orders should be made to ensure that the company did not have to bear the financial consequences of the error by the restructuring practitioner”.

iNO asked Prout if he had acted on legal advice. No response was forthcoming prior to publication.