If your company is insolvent or likely to become insolvent, you may have more options than you think. Small Business Restructuring (SBR) — introduced under Part 5.3B of the Corporations Act 2001 (Cth) — allows eligible small companies to restructure their debts and continue trading, without handing control to an external administrator.
The process has a 90%+ creditor approval rate and has become the preferred rescue mechanism for small companies that are viable but financially distressed. This guide explains how it works, who qualifies, and what directors need to do to access it.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances before making any decisions about your company’s financial position.
What Is Small Business Restructuring?
Small Business Restructuring is a simplified insolvency process under Division 1 of Part 5.3B of the Corporations Act 2001 (Cth), introduced in January 2021 and significantly expanded in 2024. It allows the directors of an insolvent small company to retain control of the business while a licensed Small Business Restructuring Practitioner (SBRP) assists them to develop a restructuring plan to put to creditors.
Unlike voluntary administration — where an administrator takes control of the company — under SBR, the directors continue to manage the business throughout the restructuring period. The SBRP’s role is to assist, certify, and oversee the process, not to run the company.
If creditors vote to accept the plan, the company’s debts are restructured according to its terms (often involving a partial payment over time), and the company continues to trade. If creditors reject the plan, the company may proceed to voluntary administration or liquidation.
Who Is Eligible for Small Business Restructuring?
To access the SBR process, the company must satisfy all of the following criteria:
- Insolvent or likely to become insolvent. The company must be, or likely to become, unable to pay its debts as and when they fall due.
- Total liabilities not exceeding $1 million. This threshold was increased from $1 million to cover more businesses from January 2024, and remains the primary eligibility cap. Tax debts, employee entitlements, and all other liabilities count toward this threshold.
- Employee entitlements paid or secured. All current and outstanding employee entitlements (wages, leave) must be paid up to date, or arrangements made to pay them.
- Tax lodgements up to date. All tax returns and BAS statements must be lodged (not necessarily paid — but lodged).
- Directors have not been a director of a company that previously accessed SBR in the last 7 years. A company cannot be a repeat user of the process within the same 7-year window.
It is important to assess eligibility carefully before commencing, because if a company enters SBR and is later found ineligible, the process can be terminated — potentially leaving the company in a worse position.
How Does the SBR Process Work? Step by Step
The Small Business Restructuring process is time-bound and procedurally structured. Here is how it unfolds:
Step 1: Directors Resolve to Appoint an SBRP
The directors must pass a resolution that the company is insolvent or likely to become insolvent, and resolve to appoint a Small Business Restructuring Practitioner. The SBRP must be a registered liquidator — not every accountant or advisor qualifies. Choosing the right SBRP is critical to the success of the process.
Step 2: SBRP Appointment and Notice to ASIC
Once the SBRP accepts the appointment, notice must be given to ASIC (within one business day) and to creditors (within two business days). ASIC registers the appointment publicly. From this point, a moratorium on creditor enforcement commences — meaning creditors cannot enforce security, issue proceedings, or pursue judgment against the company during the restructuring period.
Step 3: 20 Business Days to Develop the Plan
Directors have 20 business days (approximately four weeks) to prepare a restructuring plan in consultation with the SBRP. The plan sets out:
- How much creditors will be paid (as a percentage of their debt);
- Over what timeframe payments will be made;
- How a restructuring fund will be established and managed;
- The estimated return to creditors compared to alternative insolvency scenarios (e.g., liquidation).
The plan must be realistic and commercially defensible. The SBRP must be satisfied it is in the interests of creditors and certify it before it is sent to creditors for voting.
Step 4: Creditors Vote — 15 Business Days
Once the plan is finalised and certified, creditors have 15 business days to vote. The plan is accepted if a majority in value of creditors who vote approve it. Related-party creditors (such as directors who are also creditors) cannot vote in favour of the plan.
If the plan is accepted: the SBRP administers the restructuring fund and distributes payments to creditors as per the plan. The company is released from its restructured debts once the plan is fully performed.
If the plan is rejected: the company typically proceeds to voluntary administration or creditors’ voluntary liquidation.
Step 5: Plan Implementation
If accepted, the SBRP implements the plan — collecting plan payments from the company and distributing them to creditors. Once all payments are made as provided in the plan, the company’s restructured debts are discharged. The company has effectively survived insolvency and continues to trade.
What Happens to Creditors During SBR?
Once an SBRP is appointed, an automatic moratorium applies. During the restructuring period, creditors generally cannot:
- Enforce security over the company’s property;
- Commence or continue legal proceedings against the company for debts that arose before the appointment;
- Issue or enforce a statutory demand;
- Present a winding-up application based on a pre-appointment debt.
There are exceptions — for example, secured creditors with security over the whole or substantially the whole of the company’s assets are not automatically subject to the moratorium. They must consent or seek court orders to enforce.
Critically, employee entitlements remain payable throughout the SBR process. Employees continue to accrue entitlements and the company must pay ongoing wages, super, and leave — failing to do so can terminate the process.
SBR vs Voluntary Administration: What’s the Difference?
Many directors confuse Small Business Restructuring with Voluntary Administration. The key differences are:
| Feature | Small Business Restructuring | Voluntary Administration |
|---|---|---|
| Who controls the company? | Directors (with SBRP oversight) | Administrator (external control) |
| Who can access? | Companies with <$1M liabilities | Any insolvent company |
| Timeframe | ~35 business days to vote | Variable — often 20+ business days before creditors’ meeting |
| Cost | Generally lower | Higher (administrator fees, investigations) |
| Outcome | Plan or liquidation/VA | DOCA, liquidation, or return to directors |
| Director liability risk | Lower (directors remain in control) | Higher scrutiny of pre-administration conduct |
For eligible small businesses, SBR is almost always the preferable first option to explore. It preserves director control, is faster, and costs less than a full voluntary administration.
Director Duties During SBR
Directors do not escape their duties during the SBR process. Under ss 180–184 of the Corporations Act, directors continue to owe duties of care and diligence, good faith, and to avoid conflicts of interest. In particular:
- No uncommercial transactions. Directors must not pay out related parties, transfer assets at undervalue, or prefer some creditors over others during the restructuring period. Such transactions can be unwound if the company subsequently goes into liquidation.
- No giving preferences. Paying one creditor ahead of others during SBR can expose the company and director to unfair preference claims if liquidation follows.
- Full disclosure to SBRP. Directors must provide the SBRP with all books, records, and information required — failure to do so is a criminal offence.
- No incurring new debts you cannot pay. Insolvent trading liability under s 588G continues. If directors incur new debts during SBR knowing the company is insolvent, they can be personally liable.
Getting legal advice before and during the SBR process is essential to ensure directors discharge their duties appropriately and protect themselves from personal liability.
Risks and Limitations of SBR
SBR is not a silver bullet. Directors and their advisors need to be aware of its limitations:
- Creditors can still reject the plan. If creditors — particularly the ATO, which is frequently a major creditor — vote against the plan, the process fails. A well-structured plan with a realistic return compared to liquidation maximises acceptance rates.
- The $1 million liability cap is strict. If the company’s liabilities (including contingent or disputed debts) exceed $1 million, it is ineligible. Understating liabilities to qualify is a serious legal risk.
- Not all debts are restructured. Employee entitlements are not part of the restructured debts and cannot be reduced. Certain penalty debts (including some ATO penalties) may also be excluded.
- ASIC scrutiny. Appointment of an SBRP is a public ASIC event. It signals the company’s financial distress to the market, customers, and suppliers. Directors should consider the commercial impact before appointing.
- Prior SBR bar. If the company — or a related company under the same director — has previously used SBR within 7 years, it is ineligible.
The ATO and SBR: A Special Relationship
The Australian Taxation Office is typically the largest unsecured creditor in small business insolvency situations, often through accumulated PAYG withholding arrears, superannuation guarantee charges, and GST debts. The ATO’s approach to SBR plans is significant because its vote can determine whether a plan is accepted or rejected.
The ATO has published guidance on when it will support SBR plans. Key factors include:
- The plan offers a better return than liquidation;
- All lodgement obligations are up to date;
- The company has a viable business that can realistically perform the plan;
- There is no evidence of fraudulent or phoenix behaviour.
If you owe significant tax debt, structuring the SBR plan to address the ATO’s concerns is critical. Legal advice is essential at this stage — a poorly structured plan sent to creditors without properly engaging the ATO can fail where a well-prepared plan would have succeeded.
When Should a Director Seek Legal Advice About SBR?
As early as possible. The worst decisions in insolvency are made when directors wait too long. By the time a company receives a winding-up application, a statutory demand that has expired, or an ATO garnishee notice, options narrow significantly.
Directors should seek legal advice about SBR when they:
- Cannot pay debts as they fall due (including to the ATO);
- Have received a statutory demand and the 21-day period is running;
- Have received a Director Penalty Notice (DPN) from the ATO;
- Are concerned about personal liability for the company’s debts;
- Are facing creditor pressure and want to understand their options before appointing a voluntary administrator.
At Boss Lawyers, we regularly advise directors of financially distressed companies on their options — including whether SBR, voluntary administration, or a consensual restructure is the right path. Early advice protects the business, the directors, and the creditors.
Frequently Asked Questions About SBR
Can I keep trading during Small Business Restructuring?
Yes. Directors retain control of the company and can continue trading during the SBR period. However, you must not incur debts you cannot pay, and all ongoing employee entitlements must be met. It is strongly advisable to obtain legal advice before incurring any significant new obligations during this period.
How long does the SBR process take?
The formal process takes approximately 35 business days from SBRP appointment to creditor vote — around 7 to 8 weeks. If the plan is accepted, implementation (paying creditors under the plan) may take months or years depending on the plan’s terms.
What happens to my personal liability as a director during SBR?
SBR does not automatically extinguish your personal liability for company debts. If you have given personal guarantees for the company’s debts, those remain. If you have received a Director Penalty Notice from the ATO, that personal liability also continues. SBR deals with the company’s restructured debts — not the director’s personal obligations.
What if creditors reject the plan?
If creditors vote against the plan, the SBR process ends. The SBRP’s appointment terminates, and the company is returned to the directors’ control. The company will typically then enter voluntary administration or creditors’ voluntary liquidation. Directors should have a contingency plan prepared before the creditor vote in case the plan is rejected.
Can the ATO support a restructuring plan?
Yes — and in many cases it does, particularly where the plan offers a better return than liquidation and all lodgements are current. The ATO’s published guidance confirms it assesses SBR plans on commercial grounds. Engaging the ATO early in the process — ideally before the plan is finalised — significantly improves approval prospects.
How Boss Lawyers Can Help
Boss Lawyers regularly advises directors of companies in financial distress across Brisbane and Queensland. We help directors understand their options before it is too late, and provide strategic legal advice throughout the SBR process — including preparing for and responding to creditor objections, addressing personal liability exposure, and managing the intersection between SBR and Director Penalty Notices.
If your company is struggling with debt, do not wait for a statutory demand or winding-up application to arrive. The earlier you get advice, the more options you have.
Call Boss Lawyers on 1300 267 711 or complete our online enquiry form for a confidential discussion about your company’s position.
This article is general information only. It does not constitute legal advice. You should obtain professional advice specific to your circumstances before making decisions about your company’s financial position or insolvency options.
