In Financial Distress? What Business Owners Need to Know About Small Business Restructuring

What Business Owners Need to Know About Small Business Restructuring

When you’re facing mounting debts, overdue tax, or pressure from creditors, it’s easy to feel like the walls are closing in. For many small business owners, the fear of losing everything—your business, your reputation, your ability to keep trading—is paralysing. 

However, you may have more options than you realise. 

If your business is still viable but struggling under the weight of debt, Small Business Restructuring (SBR) may help you reset, deal with creditors, and keep operating—without immediately handing over control to an external administrator. 

What Is Small Business Restructuring? 

SBR is a formal restructuring process introduced in 2021 to help small businesses in financial distress resolve their debts while remaining in control of their operations. It’s only available to companies with less than $1 million in liabilities, and it’s overseen by a qualified Small Business Restructuring Practitioner (SBRP). 

Unlike traditional insolvency processes like voluntary administration or liquidation, the directors remain in control of the company during an SBR. That makes it a compelling option for businesses that can still trade, deliver services, and pay staff—if they can get relief from immediate debt pressure. 

Who Decides if SBR Is an Option? 

To enter an SBR, you must appoint an SBRP who will assess whether your business meets the eligibility criteria. But before you get to that point, it’s wise to speak with a commercial lawyer to understand if it’s the right fit for your business and your objectives. 

Eligibility criteria include: 

  • Operating as a company or through a trust (sole traders are not eligible); 
  • Having total liabilities under $1 million (including secured and related-party debts, but excluding employee entitlements; 
  • Having all employee entitlements paid up to date (including superannuation); 
  • Having all ATO lodgements up to date (even if tax debts are unpaid); and 
  • The company (and its directors) have not used SBR or simplified liquidation in the past 7 years. 

If these conditions are met, and your business is otherwise capable of continuing, SBR may be a viable path forward. 

Benefits of an SBR 

An effective SBR provides many advantages to small business owners, including: 

  • Creating a creditor moratorium which prohibits creditors, including the ATO from taking action to recover money or property from the business; 
  • Allowing for the development of a plan to restructure or reduce outstanding debts to more manageable levels; and 
  • The appointment of a qualified SBRP who manages the process, ensuring compliance and helping protect the directors to minimise adverse liability risks. 

Why Legal Advice Matters 

A lawyer can help you evaluate the broader picture, not just whether you technically qualify, but whether SBR makes sense for your business and your personal risk profile. 

Legal advice is especially valuable in: 

  • Assessing risk: SBR is not always the best option. Depending on your circumstances, informal creditor negotiations or voluntary administration may offer better outcomes. 
  • Protecting key assets: Whether it’s your trading name, client contracts, or an essential business licence, it’s important to understand what’s at risk and how to preserve value. 
  • Structuring the proposal: Your SBRP will prepare the plan, but a lawyer can help you manage disclosures, stakeholder expectations, and potential liabilities. 
  • Exploring alternatives: If you don’t meet the criteria or your business is no longer viable, you’ll need to understand the pros and cons of voluntary administration, liquidation, or wind-down strategies. 

What Does SBR Mean for My Business? 

If used well, SBR can: 

  • Buy time and breathing space from creditors; 
  • Protect employee jobs and maintain trading relationships; 
  • Avoid reputational harm that may follow an external administration; and 
  • Preserve important approvals or registrations, including business licences, which may otherwise be suspended or cancelled in traditional insolvency. 

However, it’s not a free pass, creditors will still vote on whether to accept your plan, and transparency is key. The process works best when directors act early, communicate clearly, and have a strategy for moving forward. 

 

We Can Help 

If you’re a business owner under pressure and need confidential advice on your options, we’re here to help.

Call ADLV Law on 1300 654 590 or email us and connect with a specialist who can help you.

The information contained in this post is current at the date of editing – 20 June 2025. 

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