Small business restructuring (SBR): keep trading, deal with the debt

What small business restructuring actually is

Small business restructuring (SBR) was added to the Corporations Act in 2021 for exactly the situation thousands of company directors are now in: a business that works, dragging a tax debt it can never realistically clear.

Here's the shape of it. A small business restructuring practitioner — a registered professional — is appointed to work alongside you. Over roughly four weeks you build a restructuring plan: an offer to pay creditors a portion of what they're owed, usually from future trading profits, over a period of up to three years. Creditors vote. If a majority in value of those who vote say yes, the plan binds all unsecured creditors — including the ATO — and once you complete it, the rest of the debt is gone.

Two things make SBR different from every older insolvency process:

• You stay in control. Unlike administration or liquidation, no one takes your keys. Directors keep running the company day to day; the practitioner's job is the plan, not your business.
• It's built to be affordable. It's a simplified, fixed-fee process designed for small companies, not a scaled-down big-end-of-town administration.

Since mid-2022 thousands of companies have used it — construction and hospitality most of all — and the numbers say it broadly works: around 92% of finalised plans were completed rather than terminated, and about 93% of companies that completed their plan were still registered shortly afterwards.

Eligibility: the four gates

SBR is deliberately gated. All four must be true:

1. Total liabilities under $1 million. This counts all debts and liabilities — ATO debt, suppliers, loans, related-party loans, secured debt — but excludes employee entitlements. Sitting just over? An adviser should check the counting carefully before you rule yourself out; contingent items are a technical area.
2. Tax lodgments up to date. Every outstanding return, BAS and activity statement lodged — or at least "substantial compliance" with lodgment obligations. Note it's the lodging that must be current, not the paying. Many companies enter SBR with large unpaid debts but clean lodgment records — that's exactly the intended user.
3. Employee entitlements that are due, paid — including super. Wages and super that have fallen due must be paid before a plan can be put to creditors. Unpaid superannuation is the most common gate companies fail. It can often be fixed — the super (with SGC) gets paid in the lead-up — but it has to be dealt with, not hidden.
4. No recent prior use. Neither the company nor its directors (including directors of other companies, within limits) can have been through an SBR or simplified liquidation in the previous 7 years.

Sole traders and partnerships can't use SBR — it's companies only. If you trade in your own name, your options run through the sole trader path.

The process and timeline: about seven weeks, start to vote

The formal clock runs in business days:

1. Day 0 — appointment. Directors resolve the company is insolvent or likely to become so, and appoint the practitioner. From this moment, unsecured creditors — including the ATO — are largely frozen: no new enforcement, no winding-up applications progressing against you while the restructuring runs. Directors keep trading in the ordinary course.
2. Days 1–20 — the proposal period. You and the practitioner have 20 business days (extendable by 10 more) to build the plan: what percentage is offered, over what period, supported by a restructuring proposal statement setting out the company's true position.
3. Days 21–35 — the vote. Creditors get 15 business days to vote. No meeting — it's done on the papers. The plan passes if a majority in value of the unrelated creditors who vote accept it. Related-party creditors (you, your family, connected entities) don't get a vote.
4. Then — the plan runs. Payments are made per the plan (commonly monthly or in staged lump sums over 1–3 years), the practitioner distributes to creditors, and on completion the balance of the unsecured debts is extinguished.

If creditors vote no, the restructuring simply ends. The company isn't automatically liquidated — but the freeze lifts, the debts are all still there, and the realistic options narrow to negotiating again or a wind-down. See SBR vs liquidation for that fork.

What creditors typically accept

ASIC's review of the first years of the regime found completed plans returned unsecured creditors an average of about 21 cents in the dollar (median 20 cents). Individual outcomes range widely — stronger businesses with cleaner histories tend to offer and need to offer more; some plans settle lower, some considerably higher.

Read that number for what it is: a company that owed $400,000 and completed a typical plan resolved it for somewhere around $80,000, paid over time, while continuing to trade. That's why SBR has become the default first question for viable companies with big ATO debts.

How the ATO votes — and how that's changing

This matters more than anything else, because the ATO is a creditor in around nine out of ten SBRs and usually the majority creditor — its own guidance says its vote "is often decisive." In practice, the ATO has supported the large majority of plans put to it, and it states it will generally support a plan that returns more than liquidation would and raises no integrity concerns.

But the free pass era is over. Acceptance rates have drifted down — from roughly 88% of plans in 2022–23 to around 79% more recently — as the ATO has started voting no on plans it sees as low-ball or backed by bad behaviour. What it looks for now:

• Compliance history. Lodgments current and a record that isn't years of lodge-late, pay-never.
• Genuine viability. Cash flow forecasts showing the company can pay the plan and stay current on new tax and super. A plan that needs everything to go right will draw a no.
• Changed behaviour. Evidence the problem that created the debt has been fixed — costs cut, pricing fixed, a bookkeeper engaged — not just deferred.
• A fair, best offer first. Director loans being repaid ahead of creditors, assets shuffled to related parties, or a token offer from a company that could clearly pay more are all vote-killers. There's no second bite: the ATO expects your best offer, first go.

What it costs

Two layers. The restructuring phase (appointment to vote) is typically a fixed fee — ASIC's data puts the median around $22,000, with real-world quotes commonly in the $15,000–$30,000 range depending on complexity. Then the practitioner takes a disclosed percentage of plan payments as they're made. It's not nothing — but weigh it against 11.43% non-deductible interest compounding on the full debt, and against what a failed informal negotiation costs in time and enforcement risk.

SBR and director penalty notices

If you've received a DPN, SBR does double duty: appointing the practitioner within 21 days of the notice date remits non-lockdown penalties entirely — the personal liability is wiped, not deferred. Compare that with a payment plan, which leaves the penalty alive behind it. Two caveats: lockdown penalties (from late lodgment) are not remitted by an SBR appointment, and the 21 days run from the posting date, not the day you opened the letter. If lodgments are behind and no DPN has arrived yet, lodging now protects non-lockdown status — and moves you toward SBR eligibility at the same time.