Restructure or Wind Up? A Director’s Guide

Restructuring under Small Business Restructuring (SBR) is a formal process in Part 5.3B of the Corporations Act (ss 452A–458E). You stay in control of the company and keep trading. A restructuring practitioner — who must be a registered liquidator, either a general one or one registered specifically for small business restructuring (s 456B; reg 5.3B.61) — works with you to put a proposal to your creditors: they accept a reduced amount, paid over a set period, and the rest of the debt is written off.

Two things make it different from what most directors expect. First, you are not handing the company to anyone. Directors retain day-to-day control throughout, which is the main structural difference from voluntary administration. Second, it only works if creditors vote for it. They are being asked to take less than they are owed, so the proposal has to be better for them than the alternative.

There is an eligibility gate. The headline test is total liabilities of $1 million or less on the day the restructuring begins (reg 5.3B.03), and the company must have paid the employee entitlements that are due and payable (s 453C(1)(a)) and have its tax lodgements substantially up to date (s 453C(1)(b)).

Winding up ends the company. A liquidator is appointed, takes control, sells what can be sold, distributes the proceeds in the order the Act sets out, and deregisters the company.

It comes in more than one form, and the difference matters. A creditors' voluntary liquidation is initiated by directors and shareholders. A court liquidation follows a creditor's application, usually after an unsatisfied statutory demand. Simplified liquidation is a streamlined, lower-cost process for smaller companies, on the same $1 million threshold and seven-year bar as SBR (Part 5.5, Division 3). A members' voluntary liquidation applies to solvent companies being wound up by choice, which is a different situation entirely.

Winding up is not a failure of process. For a business whose model no longer works, it is the process working. What causes damage is arriving there by court order months after the decision became obvious, rather than by choice.

Not "which sounds better", but these:

1. 1.Does the business trade profitably today, excluding legacy debt? If you strip out the ATO arrears and the aged creditors, does the operation make money? If no, restructuring compromises debt on a business that will simply rebuild it.
2. 2.Can you fund the plan payments from trading? A restructuring plan is a promise to pay an agreed amount over up to three years (reg 5.3B.27(1)(b)); most run twelve to twenty-four months, and some are a single lump sum inside 60 to 90 days. That money comes from operations. If cash flow cannot support it, the plan will fail and you will end up in liquidation anyway, later and poorer.
3. 3.Are you inside the eligibility limits? Above the liability threshold, SBR is not available and voluntary administration becomes the comparison instead.
4. 4.Are lodgements current? Unlodged BAS and SGC are not just a compliance problem — they can convert a director penalty notice into a lockdown notice, which removes your options rather than delaying them.
5. 5.How long has this been going on? Every month of trading while insolvent adds to potential personal liability for insolvent trading (s 588G). Time is not neutral here.

Most directors do not choose between these two. They delay, and the choice gets made for them.

The sequence is predictable. Arrears build. A creditor issues a statutory demand. Twenty-one days pass, and the period cannot be extended (David Grant & Co v Westpac (1995) 184 CLR 265). A wind-up application follows. By the time a director gets advice, restructuring is off the table — not because the business wasn't viable, but because the window closed.

Both paths have entry conditions. Restructuring requires eligibility, current lodgements, and enough time to put a proposal together. Those conditions get harder to satisfy every month, not easier.

If your business still earns money and the problem is historical debt, restructuring is the conversation to have — and to have soon, because eligibility can lapse. If the business itself no longer works, an orderly wind-up will usually leave you better off than a court-ordered one. Either way, the useful step now is finding out which situation you are actually in, with someone who can look at the numbers.