SBR vs Liquidation: Key Differences Compared

This is the difference directors care about most, and it is genuine.

In SBR, you remain a director with day-to-day control of the company. You keep signing contracts, paying wages and running the business. A restructuring practitioner is appointed to help develop the plan and to certify it to creditors, but they do not take over management (s 453L).

In liquidation, control transfers entirely. The liquidator takes possession of company assets and books, and your powers as a director effectively cease (s 471A in a court winding up, s 499 in a creditors' voluntary liquidation). Your obligation shifts to assisting the liquidator — providing records, completing a report on company affairs, and answering questions.

In SBR, creditors are asked to accept less than the full amount, paid over an agreed period. If they vote in favour, the plan binds all admitted unsecured creditors — including those who voted against it (s 455B) — and the remaining balance is released once the plan is completed.

In liquidation, debt is not compromised. Assets are realised and distributed in the priority order the Act sets out (s 556) — secured creditors from their security, then the costs of the winding up, then employee entitlements, then unsecured creditors. In most small-company liquidations, unsecured creditors receive little or nothing.

The fixed fee for the restructuring phase is deliberate — it exists so a director can know that cost before committing (IPR r 60-1B). The plan phase is different: it is a percentage of the contributions and distributions made under an accepted plan (r 60-1C), so it arises only if the plan passes. That split is unusual in insolvency and worth understanding when comparing quotes.

Liquidation has no eligibility test. Any company can be wound up. SBR does have one, and the four conditions are:

1. 1.Total liabilities of $1 million or less on the day the restructuring begins (reg 5.3B.03)
2. 2.Employee entitlements that are due and payable, superannuation included, paid in full (s 453C(1)(a))
3. 3.Tax lodgements substantially up to date (s 453C(1)(b))
4. 4.Neither the company nor anyone who was a director in the previous 12 months has used SBR or simplified liquidation in the past seven years (reg 5.3B.03(3))

That last condition surprises people. It is a one-shot process in practical terms, which is a reason not to use it on a business that cannot support the plan.

An SBR plan can fail. Creditors vote, and if a simple majority in value is not reached — more than 50 per cent of the dollar value of the admitted claims that vote (reg 5.3B.25(1)) — the restructuring ends.

That is not automatically a disaster, but you should go in knowing it is possible. The plan needs to offer creditors more than they would get in a liquidation — that is the practical test they apply. A proposal that offers a few cents when liquidation would return a similar amount gives them no reason to agree.

If the vote fails, liquidation is usually the next step, and the delay has cost time and fees.

If the business earns money once historical debt is set aside, and you are inside the eligibility limits, SBR is worth investigating properly — but the lodgement conditions mean acting sooner is materially easier than acting later. If the business no longer works, liquidation is not the worse option; it is the correct one, and choosing it beats having it imposed by a court.