Quick answer
Small business restructuring (SBR) is a formal insolvency process for Australian companies with total liabilities of no more than $1 million. The directors stay in control while a registered liquidator, acting as restructuring practitioner, helps them prepare a plan to pay creditors a portion of what's owed. If a majority in value of creditors who vote accept it, the plan binds unsecured creditors and the business keeps trading.
Key points
- Only for companies; liabilities must be no more than $1 million on the day of appointment
- Directors keep running the business, unlike voluntary administration or liquidation
- Employee entitlements that are due must be paid and tax lodgements up to date before a plan is proposed
- The plan is usually proposed within 20 business days and creditors then have 15 business days to vote
- Lenders treat a completed plan very differently from one still being paid
Think of small business restructuring as a negotiated reset for a company that’s fundamentally viable but carrying more debt than it can clear. Introduced from 1 January 2021, it borrowed the idea of a debtor-in-possession process: the owners keep the keys, an independent expert supervises, and the creditors decide.
Who can use it?
ASIC sets out the eligibility tests. In summary, the company must:
- owe $1 million or less in total when the restructuring practitioner is appointed
- be free of any earlier restructuring or simplified liquidation within the last seven years, a rule that generally extends to other companies its directors ran in that window
- have paid employee entitlements that are already due, or substantially done so, before the plan goes to creditors
- have lodged its tax returns, BAS and other required statements, or substantially done so
Notice that the tax debt itself needn’t be paid. Lodgement is the test, which is why owners with large ATO balances often consider SBR once a director penalty notice or a creditor demand starts the clock.
How the process runs
| Step | Who does what | Usual timeframe |
|---|---|---|
| Appointment | Directors resolve to appoint a registered liquidator as restructuring practitioner | Day 1 |
| Proposal period | Directors prepare the plan and proposal statement with a schedule of debts | Normally 20 business days, with one extension of up to 10 more available |
| Vote | Affected creditors return statements; plan passes on a majority in value of those voting | Generally 15 business days |
| Plan in force | Company pays the agreed amounts while trading normally | Up to three years |
During the process, unsecured creditors can’t start or continue recovery action without consent or court permission, and a winding up application can be adjourned. Dealings outside the ordinary course of business, such as selling part of the business or paying an old debt, need the practitioner’s written consent.
ASIC’s review of the early years of SBR found creditors approved 72 of the 78 plans put to them, or about 92 per cent. Proposals tend to succeed when the offer to creditors beats what they’d likely get in a liquidation.
An illustrative example
A Hobart joinery company owes $640k: $310k to the ATO, $210k to timber suppliers and $120k on an unsecured online loan. Trading is profitable again after a run of underpriced fixed-quote jobs, but the arrears are too large to clear. The directors appoint a practitioner, bring lodgements up to date and propose paying creditors $200k over 24 months from trading profits. Creditors, comparing that with a likely liquidation return of much less, accept. The company keeps its staff, workshop and contracts.
Weighing up SBR against refinancing the debt instead? Ask us what refinancing might look like.
What SBR means for borrowing
Lenders view SBR in stages. While the plan is being paid, most mainstream lenders will wait, and new borrowing may need the practitioner’s sign-off. Once the plan is completed and a few months of clean bank statements follow, the picture improves noticeably, especially with non-bank and property-secured lenders. Our page on business loans after small business restructuring covers what each type of lender looks for.
For owners whose company still has options before going formal, a tax debt loan or an ATO payment plan may achieve the same reset without an insolvency appointment. The business loan vs ATO payment plan comparison sets those side by side. Free, confidential help is also available through the government’s Small Business Debt Helpline.
Related terms: voluntary administration, insolvency, unsecured creditor, liquidation.
Rebuilding after a restructure, or trying to avoid one?
Either way, it helps to know where funding could realistically come from. Send us a short outline of where the company stands, including any plan in place and how far through it you are. It’s about a minute’s work, it has no effect on your credit history, and your story isn’t sold on or shown to a queue of lenders. One of our team reads it and phones you to discuss options frankly. Being upfront about the restructure on the form saves time, because it lets us go straight to lenders who actually consider it.
Frequently asked questions
Can a sole trader use small business restructuring?
No. SBR sits in Part 5.3B of the Corporations Act and is only available to incorporated companies. Sole traders and partnerships with unmanageable debts look at personal insolvency options instead, such as a debt agreement or a personal insolvency agreement.
Does the ATO debt have to be paid before entering SBR?
No. The tax returns, BAS and other statements must be lodged, but the debt itself can be included in the plan alongside other unsecured creditors. The ATO votes on the plan like any other affected creditor.
What happens to my personal guarantee during SBR?
While the restructuring is under way, a creditor generally can't enforce a personal guarantee against a director or their relative without the court's permission. That protection is temporary; what happens to the guarantee afterwards depends on the plan and the creditor's rights.
How long does a restructuring plan last?
Payments under the plan must be completed within three years of it being accepted. Many plans are shorter, with a lump sum or a series of instalments funded from trading profits.
Can I get a business loan after small business restructuring?
Yes, though timing matters. During the plan most lenders will wait, and the practitioner's consent may be needed for borrowing outside the ordinary course. Once the plan is completed and the company has a clean run of trading, non-bank and property-secured lenders are often willing to look at it.
Does SBR appear on public records?
Yes. The appointment is notified to ASIC, and while it's in place the company must add the words 'restructuring practitioner appointed' after its name on public documents. Lenders searching ASIC records will see it.