What Is Small Business Restructuring?

SBR does one thing well: it compromises legacy debt on a business that still works. The company keeps operating, the directors keep managing, and a proposal goes to creditors offering them a defined return — usually a percentage of what they are owed, paid from future trading.

If a simple majority in value accepts it — more than 50 per cent of the dollar value of the admitted claims that vote, with no headcount test and no 75 per cent special resolution (reg 5.3B.25(1)) — the plan binds all admitted unsecured creditors, including those who voted against it (s 455B). The company pays what the plan promises. When the plan is completed, the balance of those debts is gone.

If creditors reject it, the restructuring simply ends. The company is not automatically wound up — though a director in that position is usually looking at liquidation next, because the underlying debt is still there and the creditors have just said no to taking less.

It commenced on 1 January 2021 under the Corporations Amendment (Corporate Insolvency Reforms) Act 2020, aimed at companies too small to afford voluntary administration but viable enough that liquidating them destroys value for everyone.

Two roles, and the division between them is the point of the process.

You keep running the company. Directors retain day-to-day control and continue to trade. You still owe the usual director duties, and you still cannot incur debts the company cannot pay — the process does not suspend that.

The restructuring practitioner runs the restructuring. They must be a registered liquidator — the 2021 reforms also created a restricted sub-category, a registered liquidator (small business restructuring), who can take SBR appointments only (s 456B; reg 5.3B.61). Their job is to help you prepare the plan, make reasonable inquiries into the company’s affairs and declare whether it meets the eligibility criteria and is likely to be able to meet the plan (reg 5.3B.18), deal with creditors, put the proposal to the vote, and then administer the payments under an accepted plan. They are not a manager, and they are not there to run the business.

That is the structural difference from voluntary administration, where an administrator takes control of the company outright. For a small owner-operated business, being displaced from your own company is often the thing that destroys its value, and SBR was designed around that problem.

There is an eligibility gate, and it is narrow. The headline condition is total liabilities of $1 million or less on the day the restructuring begins (reg 5.3B.03) — total liabilities, not turnover and not assets, which catches out more companies than any other part of the test.

Beyond that, the company must have paid the employee entitlements that are due and payable, superannuation included (s 453C(1)(a)), and have its tax lodgements substantially up to date (s 453C(1)(b)). Those two bite at the plan, not at the appointment. A company can appoint a practitioner while in arrears and use the 20 business days that follow to clear them — what the directors have to be satisfied of on day one is that the company will have met them by the time a plan is proposed. Note the distinction that catches people out: lodgements must be lodged, not paid. A company can owe the ATO a substantial sum and still qualify, so long as its returns are in. There is also a bar on using the process where the company, or anyone who acted as a director within the previous 12 months, has used SBR or simplified liquidation in the past seven years (s 453C(1)(c); reg 5.3B.03(3)) — the seven years running from the date the earlier process began, not the date it finished.

The eligibility conditions are worth checking properly rather than estimating, because most of them get harder to satisfy with time rather than easier.

Practitioner remuneration in SBR has two phases, and the difference between them matters to a director weighing up the risk.

The restructuring phase — preparing and proposing the plan — is paid as a fixed fee, disclosed and approved up front (Insolvency Practice Rules (Corporations) 2016, r 60-1B). That fee is payable whether or not creditors accept the plan.

The plan phase is different. Remuneration for administering an accepted plan is set as a percentage of the contributions and distributions actually made under it (r 60-1C), which means that portion is contingent: no plan, no plan payments, no plan-phase fee. So the answer to “is the fee contingent on the vote” is: partly. The upfront work is not; the administration of the plan is.

Actual figures vary with the size and complexity of the company and are a matter for the practitioner you engage, not something to estimate from a web page.

A plan passes or fails on a single comparison, and it is not the one directors instinctively make. Creditors are not weighing your proposal against being paid in full. They are weighing it against what they would receive if the company were liquidated instead.

In most small insolvent companies, that liquidation return is low. Unsecured creditors sit behind secured creditors, the costs of the liquidation and employee entitlements (s 556), and the assets of an owner-operated services business are often worth little once the business stops trading. A plan offering a modest but certain return over a defined period can therefore be a rational thing for a creditor to accept.

This is also why the ATO’s position tends to decide the outcome. The vote is by simple majority in value of the admitted claims that vote (reg 5.3B.25(1)), and in a company with tax arrears the ATO is usually the largest single voice. It assesses proposals against its published approach to debt relief and small business restructuring (PS LA 2020/1) and its own SBR assessment guidelines, rather than case by case sentiment.

The practical consequence for a director: the plan has to be credible, not generous. A proposal built on trading forecasts the business cannot deliver reads as a worse bet than liquidation, however large the headline percentage.

1. 1.It is not a way to avoid paying creditors. Creditors vote. A proposal that offers them less than they would get from liquidating the company is unlikely to pass.
2. 2.It is not protection from personal guarantees indefinitely. There is a moratorium during the restructuring that stops a creditor enforcing a guarantee of a company debt against a director, their spouse or a relative (s 454J) — but it ends with the restructuring. A guarantee is your debt, not the company’s, and it survives the plan.
3. 3.It is not available above the liability threshold. Larger companies look at voluntary administration instead.
4. 4.It is not a way to keep trading while insolvent without consequence. Directors keep their management powers during a restructuring (s 453L), and debts incurred in the ordinary course are the company's. But a debt incurred outside the ordinary course without the practitioner's consent, or incurred while insolvent once the plan is done, can still attract s 588G.
5. 5.It is not quick to prepare, even though the statutory periods are short. The clock only starts when a practitioner is appointed. Getting to that point — lodgements current, entitlements paid, numbers reliable — is usually the longest part.

SBR suits one specific situation: a business that earns money now, carrying debt from a period when it did not. If that describes your company and the liability figure is inside the threshold, it is worth finding out where you stand on the other conditions — because they are the ones that lapse. If the business itself no longer makes money, restructuring the debt only delays the problem, and a different conversation is the honest one.