Author
David HurstDirector & ASIC Registered Liquidator
Many Australian small businesses struggle to meet financial obligations and wonder what debt restructuring options are available to keep their businesses operational. Thankfully, financial distress doesn’t mean the end of the line.
The government made significant changes designed to support the survival of small businesses. The reforms, which were introduced on 1 January 2021, were designed to provide better outcomes for businesses, employees, creditors, and the economy. They include a new debt restructuring process, simplified liquidation and complementary measures.
Eligible small businesses owners might consider using the Small Business Restructuring Process (SBRP). SBR offers a structured and practical approach to managing financial difficulties, helping to safeguard jobs and preserve valuable business assets.
What is a small business restructure?
A small business restructure is a formal debt restructuring process that allows eligible Australian businesses to reorganise their operations and debts with the assistance of a restructuring practitioner. The goal is to achieve a sustainable outcome and avoid insolvency.
The small business restructuring process allows directors of eligible companies to:
- Retain control of the business, property, and affairs of the company whilst a restructuring plan is developed.
- Work with a restructuring practitioner to develop a restructuring plan and proposal.
- Enter into a binding agreement with creditors to settle debts and avoid liquidation.
Small business restructure eligibility criteria
To qualify for a small business restructure, eligible companies must:
- Have liabilities totalling no more than $1 million
- Unable to repay debts within 12 months and facing insolvency
- Not already be subject to an insolvency administration
- Be up-to-date with tax lodgements
- Be up-to-date with employee entitlements (superannuation and unpaid wages)
- Not have used the restructuring or simplified liquidation process in the last seven years.
You may not be eligible if:
- The business has ceased trading
- No realistic cashflow forecast
- Liabilities exceed repayment capacity
- Director conduct risks exist
It’s important to seek professional advice to determine eligibility.
Small business restructuring process
Discover how to restructure a small business with our step-by-step guide.
1. Appoint a restructuring practitioner
The process begins when the directors appoint a registered liquidator to act as the restructuring practitioner. This person assesses your eligibility and provides an independent layer of trust for your creditors. Initial assessment in a debt restructuring process includes reviewing financial health and identifying causes of distress.
2. Develop the restructuring plan (20 business days)
Together with the restructuring practitioner, your business has 20 business days to prepare a plan and supporting documentation:
- The Restructuring Plan: Outlines proposed changes to business operations and payment terms for creditors.
- The Restructuring Proposal Statement: Explaining why the business failed and why the plan is viable.
3. Creditors vote (15 business days)
The restructuring plan is provided to creditors for consideration under the following terms:
- Creditors have 15 business days to review the plan and vote on it.
- The plan requires approval from more than 50% of creditors (by dollar value) to proceed. If the majority agrees, the plan becomes legally binding on all unsecured creditors, regardless of whether they voted no.
4. Execution and possible outcomes
There are two main outcomes of a small business restructuring process.
Outcome 1: Plan approved
If the plan is approved, the restructuring practitioner administers the agreed plan and your business can continue trading. During the repayment period:
- Most creditors cannot pursue legal recovery actions.
- The company's directors are protected from certain enforcement actions, including ipso facto clauses (where a contract can be altered or terminated due to insolvency-related events).
Outcome 2: Plan rejected
If the plan is rejected, you remain in control of the company but should be aware that:
- Creditors are no longer prevented from taking action.
- You are no longer protected from liability for insolvent trading.
You can consider other formal appointment options such as voluntary administration or liquidation. Those eligible for a small business restructure are generally also eligible for a simplified liquidation. This is a quicker and more cost-effective liquidation method suitable for small businesses.
Signs to consider a small business restructure
There are several warning signs to look out for, which may indicate that small businesses need to consider a business restructure:
- Cash flow problems: If your business is struggling to pay bills on time or experiencing a decline in sales, it may be a sign of cash flow issues that could indicate that the business needs to restructure its operations.
- Increasing debt: If your business is taking on more debt to cover expenses, it may signal that a restructure is necessary to address underlying issues.
- Loss of key customers: If your business is losing its key customers or experiencing a decline in customer base, it could indicate that the business needs to restructure its operations.
- Lack of profitability: If your business is consistently operating at a loss, restructuring might be necessary to improve its financial position and ongoing viability.
- Legal action or creditor pressure: If your business is facing legal action or pressure from creditors to pay debts, it’s time to speak to a restructuring advisor.
Don’t navigate financial distress alone
If your business is showing signs of distress, the best time to act is now. At Mackay Goodwin, our ASIC-registered restructuring practitioners specialise in helping Australian directors take the driver's seat, protecting your personal assets while giving your company the clean slate it deserves.
Don't let debt dictate your future; speak to our experts at Mackay Goodwin today for a free, confidential consultation to explore your options.
FAQs
Can a small business restructure be used to resolve ATO debt?
Yes. The Australian Taxation Office (ATO) is often the largest creditor for small businesses. A formal Small Business Restructure is one of the most effective ways to manage ATO tax debt. By incorporating tax liabilities into a restructuring plan, you can avoid aggressive recovery actions like Director Penalty Notices (DPNs) or winding-up orders. However, the ATO will only vote in favour of a plan if the business demonstrates future viability and has met all current filing obligations.
How much does a small business restructure cost?
The cost depends on the company's individual circumstances. Despite no two scenarios being the same, the streamlined process attracts a very reasonable flat fee. The expert advice provided by the restructuring practitioner could be vital in the survival of the business. In the event that a restructure is not possible, you will like be eligible for a low-cost simplified liquidation.
Do directors remain in control of the company during the restructure process?
Yes. Not only do the company's directors retain control, but they may also undertake transactions that are in the ordinary course of the company's business while a plan is developed and proposed. In addition, any debts incurred following the company entering a restructure are not included in the plan.
What is the role of the restructuring practitioner?
The Small Business Restructuring Practitioner (RP) is a registered liquidator who acts as an independent intermediary between your business and its creditors. Their key responsibilities include:
- Oversees process: Manages the formal restructuring framework to ensure your business remains legally compliant throughout.
- Plan development: Assists directors in drafting a viable restructuring plan and the required proposal statement for creditors.
- Expert advisory: Provides strategic guidance to directors regarding eligibility and outcomes.
- Creditor liaison: Acts as the independent point of contact to communicate the proposal and manage the voting process with creditors.
- Fund administration: Manages and distributes payments to creditors once the plan is legally approved.
- Finalisation: Formally completes the process once all terms are met, legally extinguishing the company's remaining old debts.
What is the difference between a small business restructure and administration?
A small business restructure is the process of debt restructuring and reorganising operations with the existing management team still able to run the business throughout the restructuring process. Administration involves appointing an external administrator to take control of the business and assets.
The goal of administration is to maximise returns for creditors, while a restructure is to avoid insolvency and achieve a sustainable outcome.
Small business restructure vs administration
| | Small Business Restructuring | Voluntary Administration |
| Business continues | Yes | Maybe |
| Director control | Retained | Lost |
| Creditor return | Partial | Depends |
| ATO debt | Compromised | Uncertain |
| Employee impact | Jobs preserved | Risk |
What happens to personal guarantees during SBR?
While the restructure process is active, directors receive a temporary legal stay (moratorium) that prevents creditors from enforcing personal guarantees. This provides vital breathing space to finalise the plan. However, once the plan is approved, the protection ends. If the company pays only a portion of the debt, the creditor can still pursue the director personally for the remaining shortfall. It's essential to negotiate side arrangements for these guarantees as part of your broader strategy.
Get in touch
Speak to one of our experts now for a free consultation. Enter your details below or call 02 8001 6520.