Small Business Restructuring

Small business restructuring (SBR) is a formal process under Part 5.3B of the Corporations Act 2001 that lets an eligible company restructure its debts with creditors — including the ATO — while directors stay in control of the business. It’s one of the few formal insolvency options where you don’t hand the keys to someone else, which is why it’s worth understanding properly before you rule it out or rush into it. Debt Negotiators helps directors across Australia work out whether it’s the right fit.

What is small business restructuring (SBR)?

Small business restructuring is a formal debt restructuring process for small, incorporated companies with non-complex debt, introduced into Part 5.3B of the Corporations Act 2001. The company proposes a restructuring plan to its creditors — usually involving paying back only part of what’s owed — and if creditors agree, the rest is written off once the plan is complete.

The defining feature is that directors keep running the business day to day throughout the process. A restructuring practitioner is appointed to help build and certify the plan, but doesn’t take control the way a liquidator or voluntary administrator would. For a closer look at who can act in that role and how eligibility is actually assessed, see our small business restructuring practitioner guide.

Is my business eligible for small business restructuring?

Your company needs to meet several eligibility tests on the day a restructuring practitioner is appointed, and they’re strictly administered. The most common reason businesses fall short is outstanding tax lodgements or unpaid employee entitlements, so it’s worth checking your compliance position before you get too far into the process — see does your business actually qualify for the detail behind the $1 million test.

Eligibility at a glance

How much does small business restructuring cost?

The cost is a flat fee that the restructuring practitioner quotes upfront and agrees with directors before the process starts, rather than an hourly rate that can blow out unpredictably. Real numbers give a useful benchmark: ASIC’s review of the scheme found the median practitioner remuneration was $21,998 across the plans it reviewed.

That’s a cost, not a guarantee — what a plan is likely to cost and what it’s likely to achieve for your business depends on your circumstances, the complexity of your debts, and how many creditors are involved.

What happens during the small business restructuring process?

The process runs in two phases: appointing a restructuring practitioner, then developing and voting on a plan. Directors resolve to appoint a registered liquidator acting as restructuring practitioner, who then helps build a formal proposal while the company gets temporary protection from creditor enforcement action.

From there, creditors review the plan and vote — approval needs support from more than 50% of the creditor pool by value. If it’s accepted, the company makes the agreed payments over time and, once the plan is complete, is released from the debts it covered.

Does a restructuring practitioner take over my business?

No — this is the single biggest difference between SBR and options like voluntary administration or liquidation. The restructuring practitioner acts as an adviser and gatekeeper who helps develop the plan, but directors keep running the business and making day-to-day decisions throughout.

That said, ASIC does record the appointment on the public Company Register as a form of “external administration,” so it isn’t invisible — anyone checking your company’s record will be able to see it.

Can small business restructuring reduce ATO debt, including a Director Penalty Notice?

Yes, but with one important exception: a successful SBR won’t remit a lockdown director penalty, or a standard director penalty that’s already gone unremitted for 21 days — because that liability sits parallel to the company’s, not underneath it. If you’re inside the 21-day window on a non-lockdown Director Penalty Notice, appointing a restructuring practitioner is one of the recognised ways to remit the personal liability, alongside paying in full, appointing an administrator, or winding up the company.

The ATO is often the largest creditor in these plans, and its vote can be decisive — but the ATO does regularly support restructuring plans where it would recover more than it would through liquidation.

Does small business restructuring affect your credit rating?

It can, but not automatically in every case — the main risk is where a director has given a personal guarantee on company debt, since that guarantee sits outside the restructuring plan and can still affect personal credit. The restructuring itself is a company-level process, so it’s recorded against the business, not the individual director, unless a guarantee connects the two.

Can a sole trader do a small business restructure?

No — SBR only applies to small incorporated companies with non-complex debt, and doesn’t extend to unincorporated businesses or individuals. A sole trader carrying business debt they can’t manage has a different set of options available, generally through personal insolvency arrangements rather than a company restructuring plan.

What are the common mistakes directors make with restructuring?

One of the biggest mistakes we see is directors waiting until the business is already out of cash before considering restructuring. Small business restructuring is designed to give a viable business breathing room — not to rescue a business that has already run out of oxygen. By the time a director seeks help, there may be insufficient cash to fund the restructuring itself, pay ongoing expenses, and keep the business trading all at once.

The earlier a director looks into whether SBR is realistic for their situation, the more genuine options they tend to have — including the option of finding out it isn’t the right fit and pursuing something else instead. For a broader look at other business debt relief options, see our Business Tax Debt overview.