Small business restructuring—usually shortened to SBR—is a formal process for an eligible insolvent company that has a viable underlying business but cannot repay its existing debts in full.

The process can provide a controlled way to compromise legacy debt while the directors remain in control of day-to-day trading. That distinction is important: SBR is intended to reset a viable business, not preserve a business that continues to lose money.

What changes when an SBR practitioner is appointed?

The directors generally remain in control of the company. An independent restructuring practitioner is appointed to assess eligibility, investigate the company’s business and financial affairs, help develop the restructuring proposal and decide whether the proposed plan should be put to creditors.

ASIC identifies the $1 million total-liabilities threshold as one of the entry requirements. Before a plan can be proposed, due and payable employee entitlements must be paid and the company must have substantially complied with its tax-lodgment obligations. Director and related-company use of restructuring or simplified liquidation within the prescribed period must also be checked. ASIC’s SBR guidance provides the current public framework.

Eligibility is only the first question. The more important commercial question is whether the company can meet its current obligations after the legacy debt is addressed. A forecast must allow for realistic director wages, tax, superannuation, rent, suppliers and working capital. A plan that leaves no margin for ordinary trading is not a sustainable reset.

How the proposal is decided

The company proposes how creditors’ admissible debts will be dealt with. The contribution may come from cash on hand, future trading profits, director or family funding, asset sales or a combination of sources. Unrelated creditors then decide whether to accept the proposal. Related creditors do not vote.

Acceptance is based on a majority in value of voting creditors. That means the position of the largest unrelated creditor will often be decisive.

The ATO is usually central to the outcome

In many SBR engagements, the Australian Taxation Office is the majority creditor—and sometimes the only material unrelated creditor. ASIC’s early review of the regime found the ATO was a creditor in 89% of the appointments reviewed and the majority creditor in 79%.

The existence of an ATO debt does not itself determine whether a plan will be accepted. The proposal, the liquidation comparison, the company’s compliance history and the evidence supporting future viability all matter.

Worrells practitioners have observed that the ATO can look closely at:

  • late or missing BAS, IAS, income-tax or superannuation lodgments;
  • minimal payments while the tax balance continued to increase;
  • whether post-appointment tax and superannuation can be paid on time;
  • the cause of the financial difficulty and whether it has been corrected;
  • the reliability of the cash-flow forecast and the assumptions supporting it; and
  • director or related-party loan accounts that increased while tax remained unpaid.

Why director loan accounts can affect the offer

A debit director loan is ordinarily recorded as an asset of the company. In a hypothetical liquidation, a liquidator would be required to consider whether that asset should be recovered. If the loan increased while tax liabilities were left unpaid, the ATO may also regard that history as evidence that money was being extracted from the company ahead of its tax obligations.

A proposal should therefore do more than ignore the balance. Depending on the facts, the concern may need to be addressed through repayment, an additional contribution, a proportionate increase in the offer, changes to how the director is paid, or reliable evidence about recoverability and the liquidation comparison. The appropriate response depends on the ledger, the underlying transactions and the director’s financial position.

This is a practical voting consideration, not a fixed formula in the legislation. Worrells’ article on ATO expectations in SBR explains the compliance, viability and director-loan issues its practitioners have seen in recent proposals.

National SBR experience, applied locally

Worrells reported that its practitioners had undertaken 593 SBR appointments between 1 July 2021 and 31 March 2025—the most of any firm in Australia during that period. That published analysis also compared acceptance rates and identified the practical issues that can cause proposals to fail.

For a Queensland company, the benefit of that national experience is a wider evidence base. Nik can draw on the Worrells group’s experience across industries, proposal structures and creditor responses while remaining directly responsible for understanding the local company, its numbers and the proposal being put forward.

What should be ready for the first assessment?

  • up-to-date financial statements and accounting data;
  • current ATO integrated-client and activity-account balances;
  • a list of all creditors, security interests and guarantees;
  • employee entitlement and superannuation records;
  • director and related-party loan ledgers;
  • a short, realistic cash-flow forecast; and
  • details of any DPN, statutory demand, winding-up application or other deadline.

The strongest SBR proposal is not simply the lowest amount a company hopes creditors will accept. It is the proposal that can be supported by the liquidation comparison, the compliance history and a credible plan for future trading.

This article is general information only. Eligibility, creditor voting and director exposure must be assessed on the facts of the particular company.