If you’re a struggling small business owner, Frydenberg’s reforms seem to have been more than a promise, they are reshaping the insolvency landscape for small business. If you’re a creditor to a small business, then getting paid may have become just that bit harder… (again)
Back in September 2020, the Treasurer announced significant changes to the way small businesses can ‘restructure’ their financial obligations. Several years later, we have real evidence of how this regime is performing. The proposition included:
- The introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on some key features of the ‘Chapter 11’ bankruptcy model in the United States.
- Moving from a rigid one-size-fits-all ‘creditor in possession’ model, to a more flexible ‘debtor in possession‘ model, which means that a small business owner can remain in control of their company and restructure their debts, without an external insolvency practitioner taking over.
- A rapid 20 business day ‘restructure period’ to develop a restructuring plan with assistance from a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan.
- A new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.
- Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to meet the needs of small business.
More information can be found on Treasury’s website here
In a nutshell, how have the reforms worked?
Often referred to as the Small Business Restructuring (SBR) regime, the reform allows eligible small companies to propose and vote on a restructuring plan that can bind unsecured creditors. The reforms create the new concept of the ‘small business restructuring practitioner’ who assists the small business owner to create a restructuring plan and put the plan to the business’ creditors for a vote. A restructuring plan likely involves creditors agreeing to accept less than the amount they are owed, potentially with payment made over time. If 50% of the creditors by value accept the plan, then it is approved and binds all unsecured creditors.
Usually, the ATO is the largest voting creditor and therefore, dictates whether a plan passes. To be effective, the plan needs to deliver a better return to creditors (in aggregate) than what they would receive in liquidation. The ATO expects robust financial disclosures, and heavily considers prior tax compliance against realistic forecasts, and compares them with the plan.
If a plan is not viable, or not approved by the creditors, then the reforms also allow for a streamlined liquidation process aimed at keeping costs down.
The obvious question is, have the proposed changes made a difference?
Between July 2022 and December 2024, 2,288 appointments were made, and of those, approximately 85% succeeded in the period. Approximately 87% of the funds paid out under approved plans went to the ATO, with unsecured creditors receiving only 20-21 cents in the dollar under approved plans.
Furthermore, 93% of completed plans involved are still registered and trading as of April 2025.
How we can help
If you feel your business might be headed into financial struggle, it is always the best option to get ahead of this and now is already a great time to try and restructure debt obligations. If you are feeling the dreaded financial pinch, call us on 1300 654 590 and get ahead on sorting out your business’ financial obligations.
On the other hand, if you have extended credit without appropriate protections, this is also an ideal time to act to strengthen your position.
The information contained in this post is current at the date of publishing – 10 October 2025.
