Overview
In January 2021, a new insolvency process was introduced in the Corporations Act 2001 (Act) for eligible small businesses – known as small business restructuring (SBR).
Unlike liquidation and voluntary administration, the SBR process allows directors of a debtor company to retain control of the company’s affairs while the company looks to explore a restructuring of its debts, rather than ceding that power to a liquidator or administrator.
The motivation behind the introduction of the SBR process was to provide a simpler, more cost-effective means for a financially distressed – but viable – small business to navigate its difficulties, with a view to potentially continue as a going concern down the track.
The alternative of voluntary administration – often pursued by larger entities – can involve significant costs, delays and complexity that may make it an unsuitable option for smaller entities. In the past, without a more flexible option, this often eroded the working capital of a small business, and left liquidation as the only remaining alternative.
So when can a small business utilise the SBR process? And now, after more than 4 years on from their introduction, are SBRs having the desired impact for small businesses?
What does the SBR process involve?
Eligibility
There are 4 key eligibility requirements for a small business to access the SBR process:
- its total debts must not exceed $1 million;
- it must be up-to-date with all of its tax lodgments;
- it must have paid all outstanding employee entitlements (including superannuation); and
- the company and its directors (current or in the previous 12 months) must not have made use of the SBR process, or a simplified liquidation process, in the previous 7 years.
What next?
The SBR process is designed to be quick, efficient and cost-effective, generally lasting no more than 6 weeks.
If the eligibility criteria noted above are satisfied, a company’s directors can make a resolution to appoint a small business restructuring practitioner (SBRP) – who must be a registered liquidator. There is no court involvement in the process.
The appointment of a SBRP leads to an enforcement moratorium for a 20 business day period, designed to enable the directors to work with the SBRP to develop a restructuring plan (Plan) to put to creditors.
During this period, creditors – including secured creditors – cannot take any action against the company to recover their debts, except with consent of the SBRP or the court. The court will also adjourn a winding up application if it is satisfied that the best interests of the company are served by it continuing under a SBR.
Directors retain control of the business throughout the SBR process, and trade can continue in the ordinary course of business. Directors will proactively work with the SBRP to develop the Plan, and the SBRP will investigate the company’s business, affairs, property and financial circumstances – ascertaining if a Plan is realistically viable, and with a power to terminate the SBR if that is not the case.
If a Plan is developed, it cannot last beyond 3 years. A Plan will set out a broad range of matters, including the funds to be used to meet creditors’ claims, and the extent to which creditors will be repaid their outstanding debts.
Once it is developed, a Plan must be put to creditors for a vote. Creditors have 15 business days – during which time the enforcement moratorium is extended – to vote on whether to accept or reject a Plan.
To come into effect, the Plan must be supported by more than 50% in value (not number) of creditors – but excluding any related party creditors.
If that does not occur, the SBR process ends, and creditors can continue to enforce their rights against the company.
If the voting threshold is met, a Plan becomes binding on all unsecured creditors – even those that objected to the Plan. Those creditors will be paid in accordance with the Plan – and after the company meets its obligations, it is released from the outstanding debts.
However, a Plan will only be binding on secured creditors – including an owner or lessor of property subject to a retention of title arrangement that is registered on the PPSR – to the extent their debt exceeds the value of their security, or if the creditor otherwise consents to the Plan or the court so orders.
Protections for directors
Importantly, entry into a SBR can provide protection from personal liability for the directors of an eligible small business.
Under section 588GAAB of the Act, there is a safe harbour for directors from insolvent trading during a SBR, so that any debt incurred in the ordinary course of business (or with the consent of the SBRP or the court) while a SBR is in effect cannot give rise to insolvent trading liability.
Further, the appointment of a SBRP is one of the express actions a director can take within the statutory 21-day time period to avoid personal liability after being issued with a director penalty notice.
Also, during a SBR, any personal guarantee provided by a director of the company cannot be enforced.
What are the trends?
In June 2025, ASIC released its findings from its review of the SBR process in the period from 1 July 2022 to 31 December 2024.
In that period, there were 3,388 SBR appointments. The number of appointments more than tripled in 2023-2024, compared to the previous year. ASIC projects the number of appointments to continue to significantly expand in future years.
Of the 3,388 appointments during the review period, 3,227 proposed plans were sent to affected creditors – with around 87% of the proposed plans being approved.
From the approved plans, over $101 million was returned to unsecured creditors, with the ATO receiving approximately $88 million. The average median dividend to creditors was 20 cents in the dollar.
This return is far greater than that ordinarily received by creditors in a liquidation scenario – where it is not uncommon for unsecured creditors to receive a few cents in the dollar at best.
Significantly, ASIC also found that approximately 93% of companies with an SBR plan finalised by 31 March 2025 remained registered at the end of April 2025. While it could not be verified if all of those companies were still trading, the data does suggest that the SBR process has helped to ensure the survival of small businesses (at least in the short-term).
ASIC suggests that, on balance, the figures reflect that the SBR process is “starting to deliver” on the policy objective to reduce the complexity and costs of the insolvency process for small businesses, and to ultimately help those businesses survive.
Nevertheless, there continue to be views in the industry that further uptake of the SBR process is being inhibited by the strict eligibility criteria. There are also concerns about potential unintended consequences arising from the appointment of a SBRP, such as the voiding of licences required to operate a business (such as a builder’s licence) and the voiding of insurance policies.
There is scope for these matters to be addressed as part of a planned “comprehensive review” of Australia’s insolvency regime – recommended by the Parliamentary Joint Committee on Corporations and Financial Services in its Final Report issued in July 2023.
Takeaways
Pending any further reforms, directors of small businesses falling within the existing eligibility thresholds should proactively consider a SBR if the business is in financial distress.
A SBR is a much simpler process than a typical VA, involving less time and expense, and preserving working capital that increases the potential for the business to be successfully returned to trade after a debt restructure, rather than undergoing a premature liquidation.
Our team at K2 Law is highly experienced in all aspects of insolvency and bankruptcy law, and we are passionate about helping small business owners achieve the best possible outcome for their businesses and their personal affairs.
Please get in touch with Alyce Corbutt or Mary Jeffries if you would like to discuss insolvency options for your business, and steps you can take to minimise your own personal liability risk as a director if your business is facing financial trouble.
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