Let's get one thing straight right off the bat, a Small Business Restructure (SBR) does not mean you hand control of the company to someone else, lay off your staff, stop the business from trading or be pushed into closing your business. A small business restructure is designed to give eligible businesses a formal way to deal with debt while the directors stay in control of the company and continue trading, while you figure out a plan to address your debt. It's that simple.
An SBR can be the difference between stressing out over losing your business and actually getting a proper framework to sort out your business debt once and for all.
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What is small business restructuring?
A Small Business Restructure is a way that business owners may reduce their business debts (including tax), get a longer timeframe to pay debts back, get legal protection for the debt, and keep their business trading.
Small business restructuring is available to eligible incorporated businesses with liabilities of less than $1 million, but that is only part of the picture. The company must also be up to date with tax lodgements, have paid all outstanding employee entitlements, and must not have used the SBR or simplified liquidation process in the past seven years.
In plain English, it is a process designed for companies that are still commercially alive, but are being suffocated by debt.
That distinction matters.
This is not built for a business that is completely dead and has no viable future. It is built for a company that may still have customers, revenue, staff, and a reason to keep going, but needs a better way to deal with the debt burden.
For a lot of business owners, the real attraction is simple. They want to reduce the pressure, keep the business trading, and avoid a worse outcome if possible.
Who is small business restructuring for?
This process is mainly relevant for company directors whose business is still trading, but under too much pressure from debt.
It may be worth looking at if:
- the company is still operating
- ATO debt is a major issue
- payment plans are not solving the real problem
- creditor pressure is building
- cash flow is tight, but the core business is still viable
- the directors want to avoid a worse outcome if possible
It is important to be clear about what it is not for. The ATO says small business restructuring is for eligible incorporated businesses, not unincorporated businesses or individuals. That means sole traders and partnerships do not use this formal process.
That is why one of the smartest early steps is to work out whether your business may actually fit the shape of a restructure before wasting time on the wrong path.
How does small business restructuring work?
The directors decide they need help
Directors are in the thick of it under financial stress and the company is insolvent or likely to become insolvent at some future time. That is usually the point where the business stops pretending the pressure is temporary and starts looking at a more formal path.
Business Debt Assessment
Our expert panel goes through your scenario, assesses what options are available, and helps you understand them. We'll discuss if you qualify, if you can become eligible, and if it's the right option for you.
Preparation for your best interests
We help prepare everything with the director's best interests in mind. We ensure you go into the process informed, protected, and in the strongest possible position.
Appoint a restructuring practitioner
Appoint a trusted registered restructuring practitioner to commence the proposal period. The practitioner prepares a proposal to put forward to creditors, and legal protection is put in place from the moment they are appointed.
Restructuring plan proposed
The proposal on how you address the debt is presented to creditors. This often includes adjusting the amount of debt, the timeframe in which it is to be paid back, and how instalment payments may be made.
Creditors vote
Creditors vote on the plan. For the plan to pass, it must receive a yes vote from more than 50% of creditors by dollar value. So if more than 50% of the debt is owed to one creditor, their vote will decide the outcome.
Plan implemented
The plan is implemented and the business moves forward with reduced debt, legal certainty, and a path to recovery.
What are the eligibility criteria for a business to do a small business restructure?
This is where a lot of business owners get caught out. The process can be powerful, but it is not a fit for everyone.
SBR is only available to companies that meet specific eligibility criteria. The key requirements are:
- The company has liabilities of less than $1 million
- Tax lodgements are up to date
- Employee entitlements are paid and up to date
- The director has not used SBR in the last 7 years
- Is Insolvent or likely to become insolvent
What if your business doesn't meet the eligibility criteria?
You might still be able to do an SBR if your business doesn't 100% meet the criteria at the moment. The business only needs to be eligible at the time of the proposal. As part of our debt-solving process, our debt expert panel will work with you to make your business eligible if they believe you would otherwise see success in the Small Business Restructuring process.
Why do business owners consider restructuring?
Most owners do not seek small-business restructuring out of curiosity. They search for it because the pressure is driving them crazy:
- ATO debt is no longer manageable
- Cash flow is being strangled by old debt
- Creditor pressure is getting louder
- Payment plans are not fixing the problem
- The business is still viable, but buried under the debt
A lot of businesses start by trying to push through on a payment plan. Sometimes that works. Sometimes it simply delays the point where the business has to face that the debt problem is too large for informal fixes.
Learn More about Payment Plans vs Small Business Restructuring
Is small business restructuring better than liquidation?
If your goal is to keep your business, reduce your business debt, get some space from creditors breathing down your neck and get an actionable plan to get your business back on its feet, then yes, an SBR is better than liquidation.
But it does depend on whether the business is still viable, if the business is eligible or is able to become eligible and if our debt reduction expert panel thinks your business's situation would suit an SBR. But if the business is no longer viable, liquidation may be the more realistic outcome.
That is also why this topic naturally sits next to the liquidation comparison conversation.
Learn More about Small Business Restructuring vs Liquidation