Back to NewsIf your small business is contending with debt and facing potential insolvency, then the Small Business Restructuring (SBR) process may offer an avenue to recovery. SBR is a practical and cost-effective solution that allows eligible small businesses in financial distress to continue to trade as they restructure debts and regain stability, under the guidance of a qualified Small Business Restructure Practitioner (SBRP).
The following short guide explains how SBR works, how it differs from Voluntary Administration or Liquidation, and what eligibility criteria apply in order to partake in the scheme.
Whatever the cause for your business’s need for the SBR, it could be the solution that not only rescues your business, but also allows you to progress with increased confidence.
Small Business Restructuring: A Brief Overview
Small Business Restructuring (SBR) is an Australian government initiative that was introduced in January 2021 under Australia’s Corporations Act. This formal insolvency scheme was originally intended to assist small businesses financially impacted by the COVID-19 pandemic, however remains ongoing, and now helps financially-distressed businesses, regardless of the cause.
As part of the SBR process, businesses facing insolvency are able to continue operations, whilst being assisted by a Small Business Restructuring Practitioner to restructure their debts. SBR is an alternative to Voluntary Administration or Liquidation, which are generally less favourable for small businesses, as owners lose control of their businesses when undergoing these solutions, and indeed, may need to wind up their business entirely. (These insolvency measures are usually also more expensive than SBR.)
How Small Business Restructuring Works
When a company identifies that they are eligible for SBR, they appoint a Small Business Restructuring Practitioner (SBRP), who helps them create a debt restructuring plan to present to creditors. The company directors can seek guidance on the plan over the course of the entire SBR process, and the business may continue to operate.
After a restructuring plan is proposed to creditors, creditors vote on whether or not to accept it. If the majority of creditors (by value) agree, then the plan will be implemented, and the company pays the agreed debt amounts within the timeline outlined in the restructuring plan.
During this time, the SBRP manages the disbursement of payments to the company’s creditors, on the terms set out in the plan.
The maximum payment term for Small Business Restructuring is 3 years.
How Does Small Business Restructuring Differ from Voluntary Administration and Liquidation?
SBR vs Voluntary Administration (VA)
Though the SBR and VA are both formal insolvency processes, they are different in the following key aspects:
- Who retains control: Under SBR, business directors retain control, whereas with Voluntary Administration, control of the business is handed over to an external Voluntary Administrator. This administrator takes charge of key decisions relating to the company’s future, and business directors help the Administrator as and when required.
- Cost: Voluntary Administration tends to be more complex and involves far more administration than SBR. For this reason, SBR is much less costly for businesses, and the fee is fixed at the commencement of the process, so there are no surprises down the track.
- Purpose: An SBR is a far more simple process than VA, and sets its sights on restructuring debts and maintaining the business. VA, on the other hand, may result in a company restructuring, being sold, or being liquidated, depending on the recommendation of the appointed administrator.
- Timeline: The timeline for SBR is quite fast, and the restructuring plan is usually formalised within 36 business days. VA, in contrast, can take longer, leaving involved parties uncertain about their future.
SBR vs Liquidation
Liquidation involves permanently closing a company. Company assets are sold to repay creditors.
- Ongoing Operations: In SBR, the business continues to trade while it restructures its debt. In Liquidation, the business stops trading altogether.
- Who retains control: In SBR, company directors remain in control, whereas in Liquidation, a liquidator is appointed to take full control of the business, and wind the business up.
- Outcomes for creditors: A small business restructuring plan may involve creditors receiving a partial repayment of debts owed to them by the business. In Liquidation, on the other hand, creditors are repaid from asset sales—and this often comes with lower returns. For this reason, an SBR might provide creditors with better outcomes.
- Purpose: While SBR aims to keep a business alive and provide it with a path to recovery, liquidation is the final step taken when a business is no longer viable.
Key benefits of SBR
Here is a summary of the main benefits of Small Business Restructuring:
Expert Assessment: An SBRP evaluates your business to determine if it’s viable and worth saving. You receive honest insights into your financial situation.
Future-Focused Strategy: The SBR process shifts attention from past mistakes to creating a clear plan for future success.
Potential Debt Reduction: Negotiations with creditors and potential tax relief may lead to reduced debt, which can ease financial pressure.
Cost-Effective Solution: SBR fees are fixed and agreed upon upfront, ensuring transparent costs and affordability compared to other insolvency processes.
Creditor Protection: While restructuring, creditors are legally prevented from taking action against your business, offering you breathing space.
Simplified, Court-Free Process: The administrative nature of SBR avoids court involvement, and hence minimises stress, costs, and reputational risks.
Boosts Stakeholder Confidence: Demonstrating proactive recovery efforts helps restore faith with creditors (including the ATO), suppliers, and customers.
Better Outcomes than Liquidation: SBR offers higher survival chances, improved creditor returns, and the opportunity for a fresh start for a business.
Quick Resolution: Within 36 business days, a restructuring plan is confirmed, offering clarity and actionable next steps.
Expert Guidance: The process ensures that professional support is part of the strategy, as an SBR must be led by an ASIC-registered practitioner, acting in the role of Small Business Restructuring Practitioner.
Business Continuity: The company can continue operating during the restructure, preserving jobs and minimising disruptions.
Director Control: Directors remain in charge of day-to-day operations, ensuring familiarity and consistency throughout the process.
Small Business Restructure Eligibility
Small business debt restructuring via the SBR is only available to businesses that meet certain criteria. This ensures that the process is applied effectively and appropriately.
Before commencing a small business restructure, business owners should initially check to confirm that they meet the Small Business Restructure eligibility criteria. (This 30 second test can help you to understand if your business meets the requirements.)
In the process of appointing a Small Business Restructuring Practitioner, eligibility for the scheme will again be tested and confirmed, before the appointment is confirmed and the SBR commences.
Small Business Restructure Eligibility Criteria
To be eligible for SBR, the following criteria apply:
- The business must be an incorporated entity (e.g. Pty Ltd company) under the Corporations Act 2001.
- Total liabilities must be under $1 million (after deducting the value of secured assets and excluding employee entitlements).
- All employee entitlements due and payable must be paid before SBR can begin.
- Tax lodgements must be up to date or substantially compliant.
- No prior use of SBR or simplified liquidation in the past 7 years (by company or directors).
- Directors must declare the company is insolvent or likely to become insolvent.
- A registered Small Business Restructuring Practitioner (SBRP) must be appointed to guide the company through the SBR.
Let’s look more into the rationale behind each of the small business restructuring eligibility criteria.
1. Company Structure Requirements
To be eligible for Small Business Restructuring, a business must be an incorporated entity under the Corporations Act 2001, such as a proprietary limited company (Pty Ltd).
Being incorporated means that business directors are subject to corporate responsibilities and protections. (Sole traders and partnerships are excluded from the SBR.)
2. Total Liabilities Under $1 Million
When entering the SBR process, a company’s total liabilities must not exceed $1 million (after deducting the value of secured assets), excluding employee entitlements.
This requirement ensures that the SBR process targets small businesses only. It also helps maintain the process’s efficiency and cost-effectiveness.
3. Employee Entitlements Must Be Paid
All due employee entitlements, including wages and superannuation, must be paid before a company can propose a small business restructuring plan to creditors.
This ensures that employees’ rights are protected, and they aren’t financially disadvantaged during the restructuring process.
4. Tax Lodgements Must Be Up-to-Date
Companies undertaking an SBR are expected to be up to date with tax lodgements, or be substantially complying with this requirement. This includes BAS, GST, PAYG, etc.
This ensures the SBRP can make an accurate assessment of the company’s financial position, and can provide that assessment to creditors, as it is essential for creditors to understand the full picture before they decide whether or not to accept the SBR proposal.
Being transparent and accountable to the Australian Taxation Office (ATO) also demonstrates that the company is committed to meeting its statutory obligations, and should give creditors more faith in the ongoing viability of the company.
5. No Prior Use of SBR or Simplified Liquidation in the Past 7 Years
The use of SBR is restricted to those who have not accessed these solutions within the preceding seven years.
Allowing repeat use of the SBR may encourage company directors to fall back on this solution, rather than operating the company in more sustainable ways. Therefore, one criteria for the SBR is that neither the company nor any of its directors (current or within the past 12 months) can have previously used the SBR process or undergone a simplified liquidation in the last seven years.
6. Insolvency or Likely Insolvency Declaration
In order for an SBR to commence, the company directors must resolve that the company is insolvent or likely to become insolvent, and that they should appoint a Small Business Restructuring Practitioner (SBRP).
The restructuring process can only be formally initiated when this acknowledgement of the company’s financial distress is declared.
7. A Small Business Restructuring Practitioner Must Be Appointed
To take advantage of the SBR, a small business must appoint a Small Business Restructuring Practitioner (SBRP), who must be a registered liquidator.
The SBRP will oversee the process, and help business owners develop a restructuring plan to present to creditors. The professional SBRP will be across all legal requirements, and will provide an independent assessment of the company’s viability, whilst also working with the company to guide them through the process.
Businesses that don’t meet SBR eligibility requirements
If a business does not meet the eligibility requirements for the SBR, other avenues may be explored, including:
- Voluntary administration, safe harbour, liquidation or informal creditor arrangements
- Seeking financial and legal advice
- Steps to improve business financial health for future eligibility.
Signs that your business is in financial distress
Many business owners will recognise that their business is facing trouble, whereas others may be so focused on daily operations, they miss crucial signals of financial distress.
If any of the following apply, it is time to seek help from a professional business rescue service:
- Declining Revenue – Falling sales, shrinking cash reserves, and inability to pay creditors.
- Overdue Taxes & Lodgements – Late tax payments or missing lodgements with the ATO.
- Legal Issues – Costly legal proceedings draining resources and focus.
- Out-of-Control Expenses – Expenses outpacing income, harming supplier relationships and growth.
- Excessive Debt – Focus shifting from growth to debt management and creditor demands.
- Cash Flow Problems – Regular shortfalls affecting payments and day-to-day operations.
- Limited Access to Credit – Trouble securing credit, worsening operational strain.
To understand more about these, and other signs that a business could benefit from the SBR, see this related post: Signs Your Small Business Needs Restructuring.
Start the SBR Journey Today
If you recognise that your business needs help via a Small Business Restructure, get in touch with Business Rescue Solutions. Our registered Small Business Restructuring Practitioners (SBRPs) can help you negotiate payments of historical debts with your creditors, and better your chances of business survival. In a little over a month, you gain breathing space to recover your business, as well as more certainty about your company’s future.
