How 2,820 Companies Found a Lifeline Instead of Liquidation
 
A new report reveals why business owners are turning to Small Business Restructuring (SBR) to keep their businesses afloat.
Since its introduction on 1 January 2021, the Small Business Restructuring (SBR) process has helped over 2,800 Australian small businesses stay afloat - without shutting their doors. By capitalising on this key reform to Australia's insolvency framework, these businesses have formally restructured their debts and successfully avoided liquidation.
 
What is Small Business Restructuring (SBR)?
Small Business Restructuring (SBR) is a formal insolvency process introduced by the Australian Government in 2021, designed specifically for small companies with total debts less than $1 million. It provides a structured way for eligible businesses to negotiate with their unsecured creditors - including the ATO, suppliers and lenders - to repay a portion of their debts over time, while allowing directors to remain in control of the business.
Unlike liquidation or voluntary administration, where an external administrator takes control, SBR allows directors to work alongside a registered restructuring practitioner who supervises the process and helps develop a realistic repayment plan. This approach gives businesses breathing space to manage debt without losing operational control.
 
How Do You Know if SBR Could Help?
SBR may be a suitable option if your business is experiencing:
  • Increasing pressure from creditors such as the ATO or suppliers.
  • Difficulty keeping up with repayments, but maintains a viable core business.
  • Temporary cash flow challenges rather than fundamental business failure.
  • A desire to avoid liquidation and its associated reputational and operational consequences.
It's essential to recognise that SBR is intended for businesses that are still viable but require time and structure to manage their accumulated debts. If a company is no longer viable, liquidation or other insolvency options may be the only recourse.
 
How Does Restructuring Work?
The Small Business Restructuring (SBR) process involves several key steps:
  • Appointment of a restructuring practitioner: Directors appoint a registered practitioner to oversee the process while the business continues to trade.
  • Plan preparation (within 20 business days): The practitioner works with the directors to develop a restructuring plan, proposing how unsecured creditors will be repaid. This plan is submitted to creditors, along with a detailed restructuring proposal statement.
  • Creditor voting (15 business days): Creditors have 15 business days to consider the plan. If more than 50% (by value) of voting creditors approve it, the plan becomes binding on all affected unsecured creditors.
  • Implementation: If accepted, the business continues trading and makes payments under the agreed terms, which can extend up to three years. The directors remain in control throughout, guided by the restructuring practitioner.
 
Who Can Access It?
To be eligible for Small Business Restructuring (SBR), a business must meet specific criteria:
  • It must be a company (sole traders and partnerships are not eligible).
  • Total liabilities must be less than $1 million, including secured and unsecured debts. The company must not have undertaken an SBR in the past seven years.
  • Directors must believe the company is insolvent or likely to become insolvent, and resolve to appoint a restructuring practitioner.
  • The company must not be under other formal insolvency processes, such as voluntary administration or liquidation.
These rules are designed to ensure SBR is used by businesses that are still viable and have a realistic path to recovery. Creditors often receive better returns through restructuring than they would in liquidation - a win-win for both sides.
 
What Happens If You Don't Act?
Delaying action can narrow your options. If debts continue to grow or business compliance deteriorates, your business may lose access to restructuring altogether. Creditors - especially the ATO - can escalate recovery efforts, including legal action or seeking liquidation. In many cases, this leads to business closure, job losses and long-term impacts on a director's ability to run future companies.
By acting early and engaging a restructuring practitioner, business owners can protect value, remain in control and implement a structured plan to deal with debt before it's too late.
 
Small Business Rescues: Successful Restructuring Case Studies.
  • Coffee Machine Wholesaler Recovers and Rebuilds: A Melbourne coffee machine wholesaler faced $677,000 in debt after COVID disruptions and faulty imports, with the ATO as the major creditor. Instead of folding, they used Small Business Restructuring (SBR) to propose a plan repaying $138,000 over 18 months - about 19 cents on the dollar. The plan was accepted, debts cut by over 80% and the owners kept full control. The business stayed open, saving jobs and supplier relationships (Source: Jirsch Sutherland).
  • Electronics Retailer Turns the Tide: A regional electronics retailer burdened by $303,000 in debt, founder loss and internal fraud took decisive action by engaging experts and using SBR. Together, they crafted a plan offering creditors around 20 cents on the dollar, which was approved by the ATO and others. The business survived without liquidation or administration, while retaining staff and owner control (Source: Rapsey Griffiths).
 
To explore this topic in more detail, you can read ASIC's Report 810 in full here.
Please note we do not provide tax, legal or accounting advice. This article has been written for general informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. We suggest you consult with your own tax, legal and accounting advisers before engaging in any transaction.
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