Small business restructuring: the ASIC process that lets directors keep the keys

For years, an Australian company in deep trouble had two doors: stay and struggle, or hand control to an administrator or liquidator. The small business restructuring process, introduced in January 2021, added a third door, and it is the only formal one where the owner stays in the chair.

It is not for everyone. The rules are tight, the clock is short and the outcome depends on the creditors. This guide walks through how it works, who qualifies, what it can and cannot fix, and what comes after.

What is small business restructuring?

It is a debt compromise for small companies. Rather than owing a full amount now, the company proposes a plan to pay creditors a portion over time, generally up to three years from acceptance. If enough creditors agree, the plan binds the ones who voted against it as well. The directors keep trading, and the unpaid balance covered by the plan is dealt with once the plan is completed.

The glossary has a short entry on small business restructuring, and the wider term insolvency sets the context. The process is aimed at companies that are viable underneath but weighed down by past debt, for instance a business whose trading now covers its costs but which can’t also clear the old liabilities in a lump.

Who is eligible?

ASIC sets the test on the day the restructuring practitioner is appointed. The company must meet each of the following:

• Total liabilities of $1 million or less.
• No restructuring or simplified liquidation by the company in the previous seven years.
• No director (including one who resigned in the last 12 months) who was a director of another company that went through either process in the previous seven years, subject to some exemptions.
• Employee entitlements that are due paid up to date, and tax returns and statements lodged, or substantially complied with.

Two points trip people up. First, the $1 million is total liabilities, not just the debt you want to restructure, so a company with big leases or loans may be over the line. Second, the lodgement requirement is about paperwork, not payment: you can owe the ATO, but you can’t be behind on lodging BAS and returns. If your accountant is behind, that has to be fixed first. Our page on loans when BAS lodgements are late covers how lenders see that problem.

Because it is a company process, sole traders and partnerships can’t use it. Their formal options are different, which a registered insolvency practitioner or a financial counsellor can explain.

What does the process look like in order?

1. Directors conclude the company is insolvent or heading that way. They resolve to appoint a restructuring practitioner, who must be a registered liquidator.
2. The practitioner is appointed. From here, the clock runs. The practitioner advises and helps prepare the plan, and also declares to creditors whether the eligibility criteria are met.
3. The company has 20 business days to propose a plan. The practitioner can extend that by up to 10 business days once, at the company’s request. If no plan is proposed in time, the restructuring ends.
4. Creditors receive the plan and a proposal statement. The documents set out the company’s affairs, the plan and what creditors would likely receive in a liquidation.
5. Creditors vote over about 15 business days. The plan is accepted if a majority in value of the affected creditors who returned statements say yes. The period can run longer if creditors dispute the schedule of debts.
6. The company pays under the plan. Payments on the admissible claims cannot extend past three years from acceptance. The practitioner receives the money, holds it on trust and pays creditors, and if a breach occurs it must be fixed within 30 business days.

Most owners are surprised by the speed. Twenty business days is about a month, and a workable plan depends on numbers you can defend. If you have not run a 13-week cash flow forecast, do it before you meet the practitioner, because the forecast is the evidence that the company can afford the plan.

What stays under your control, and what doesn’t?

During restructuring, ASIC’s guidance is plain that directors keep control of the business, property and affairs. You can keep trading, paying staff and buying stock in the ordinary course. The practitioner does not run the company day to day.

There are firm limits, though. Anything outside the ordinary course needs the practitioner’s consent. Three things are deemed outside it: paying an admissible old debt, selling or transferring all or part of the business, and paying a dividend. In other words, you can’t quietly pay a friendly supplier from before the process, or sell the assets across to a new entity.

There is also a protection. Unsecured creditors generally can’t start or continue to enforce their claims without the practitioner’s consent or a court’s permission, and a court is to adjourn a winding-up application if continuing under restructuring is in the company’s interests. A pending statutory demand or a creditor threatening to wind you up can lose its force in this way, though timing matters, so take advice early.

What can’t restructuring fix?

It is easy to over-read it. Here are the blind spots.

• Employee entitlements. They are excluded from the plan and must be paid up to date to qualify.
• Secured creditors. A lender with security over assets can generally still deal with that security. A plan that ignores them may not hold.
• Personal guarantees. Directors’ guarantees are separate. A restructure of the company doesn’t automatically release you, so the lender can still look to you personally. See our guide on business loans and personal guarantees.
• A business that doesn’t work. If the company loses money at its current scale, a payment plan only delays the end. Honest practitioners will say so, and may recommend a different path such as closing a business with debts.
• Ongoing tax. New BAS, PAYG and super obligations still fall due as normal. Breaking them can cost you the goodwill of the ATO, which is often your largest creditor.

What does it cost, and is it worth it?

The practitioner is paid from the company’s funds, and fees are agreed with the company at the start; they vary with how complex the business is, so get a quote in writing and ask what is included. Treat your first conversation as a screening test: ask what the likely creditor outcome is, whether your numbers fit, and how much of the cost falls before creditors see a cent.

Compare it fairly with the alternatives. A negotiated informal arrangement with creditors costs less but binds only those who agree, so a single holdout can undo it. Voluntary administration can save a larger business but takes control from the directors. An ATO payment plan fixes one creditor, not all of them. Restructuring is the one that can bind everyone with a single vote, at the price of formality.

What happens to borrowing afterwards?

A restructure does not end your ability to borrow, but it changes the conversation. Lenders will ask what went wrong, whether it has been fixed and whether the plan is being met. Keeping to the plan is your strongest evidence. A business that finishes the plan early and shows steady bank statements afterwards is a very different proposition from one that has just entered it.

Expect some lenders to decline during the plan and a narrower set to consider you afterwards. Our situation page on business loans after small business restructuring explains what is assessed. Think twice about borrowing to fund the plan itself, since new expensive debt used to pay the old can cancel the gain. Our guide on stopping a debt spiral covers that trap.

Where should you start?

Before you appoint anyone, speak to someone independent and free. A call to the free Small Business Debt Helpline (1800 413 828) can help you test whether restructuring suits you, though counsellors generally don’t give legal or corporate insolvency advice, so they will point you to a registered liquidator or lawyer for that. Our guide to free financial counselling for small business lists the options.

Wondering whether finance could carry the business through instead of a formal process? Put your situation to us.

Could funding keep you out of a formal process?

Sometimes. If your trouble is a timing gap rather than a structural loss, a loan that clears a pressing creditor and steadies the next few months can be cheaper and less disruptive than a formal route. Other times a restructure is the right call, and we will tell you so. Either way, enquiring takes about a minute and your credit file isn’t touched just for asking.

We don’t pass your details around to a crowd of lenders, so you won’t spend the week fielding calls. A real person reads what you write and phones you to talk it through. Please fill in the form as accurately as you can, including debts, arrears and any ATO arrangements, so the first option we suggest is one that can actually work.

Check whether finance could ease the pressure →