7 Things To Know About Small Business Restructuring

Small Business Restructuring has grown rapidly since its 2021 introduction, becoming an important tool for directors of distressed companies to manage debt while staying in control of their business.

It’s designed to be faster, cheaper and less disruptive than traditional insolvency procedures. However, the rules are complex and the statistics reveal both promise and limitations.

Empirical Legal helps directors navigate these processes with legal, business and technology expertise. We act as your external in-house counsel, guiding you through SBR from eligibility checks to plan approval, ensuring compliance, minimising risks and protecting long-term business value.

Summary of the 7 Things You Should Know

The seven key points are:

1. Uptake is rising quickly
   SBR appointments have surged, especially in construction and hospitality.

2. Eligibility rules are strict
   Many distressed businesses can’t qualify.

3. Directors keep control
   Unlike other insolvency options, SBR is a debtor-in-possession process.

4. The ATO is often the key creditor
   Their vote can decide your plan’s success.

5. Costs are stable but not always cheap
   Median practitioner fees remain around $22,000.

6. Most approved plans succeed
   Over 90% of finalised plans were fulfilled.

7. There are limits to what can be restructured
   Contingent liabilities and personal guarantees are excluded.

1. Uptake is rising quickly

From July 2022 to December 2024, there were 3,388 SBR appointments (ASIC REP 810). That’s a huge jump from just 82 in the first 18 months of the regime. Annual appointments rose from 448 in 2022-23 to 1,425 in 2023-24, with 2024-25 on track for about 3,000.

Two industries accounted for half of all cases:

1. Construction - 27%

2. Accommodation and Food Services - 23%

Growth in SBR appointments

FY2021-22 (partial)

• 82 appointments

FY2022-23

• 448 appointments

• +446% change from previous year

FY2023-24

• 1,425 appointments

• +218% change from previous year

FY2024-25 (forecast)

• ~3,000 appointments

• +111% change from previous year

This growth shows more directors are using SBR but the relatively small base compared to the number of distressed businesses suggests awareness and eligibility remain barriers.

2. Eligibility rules are strict

To qualify, your company must:

1. Be incorporated under the Corporations Act 2001 (Cth);

2. Have liabilities under $1 million (excluding employee entitlements);

3. Be insolvent or likely to become insolvent;

4. Be up to date with tax lodgements; and

5. Have all employee entitlements paid.

These rules exclude many struggling businesses. For example, more than 60% of Australian small businesses have no employees but those with staff who are behind on superannuation cannot access SBR (ASIC REP 810). Directors with personal guarantees over company debt also get no protection.

3. Directors keep control

SBR is Australia’s first debtor-in-possession corporate insolvency model. Unlike voluntary administration, where control passes to an external administrator, directors stay in charge while a Small Business Restructuring Practitioner (SBRP) oversees the process.

This can make it easier for directors to act early and preserve business relationships. However, major decisions outside the ordinary course of business still require practitioner consent and the process has tight oversight.

4. The ATO is often the key creditor

In more than 80% of cases, the Australian Taxation Office (ATO) is the largest unsecured creditor (ASIC REP 810). In fact, 87% of the $101 million paid to unsecured creditors from fulfilled SBR plans went to the ATO.

That means the ATO’s vote can make or break your plan. Creditors vote by value and only those who respond are counted, so one large creditor voting “no” can derail a restructuring.

Outcomes from fulfilled SBR plans

ATO as the creditor

• $88m paid

• comprises of 87% of total amount paid from plans

Other unsecured creditors

• $13m paid

• comprises of 13% of total amount paid from plans

Directors should understand the ATO policy on SBR plans and factor this into their proposal.

5. Costs are stable but not always cheap

The median remuneration for SBRPs during the review period was $21,998, close to the $22,055 reported in ASIC’s earlier review (ASIC REP 810). About three-quarters of this is paid during the initial SBR phase, with the rest during the plan phase.

While this is cheaper than most voluntary administrations, it’s still a significant cost for micro-businesses. Practitioner fees must be fixed upfront, which can limit flexibility if the process becomes more complex than expected.

6. Most approved plans succeed

During the review period, 87% of SBR plans put to creditors were approved. Of the finalised plans, 92% were fulfilled, meaning the agreed repayments were made and debts released.

Around 93% of companies with fulfilled plans remained registered as at April 2025, evidence that the process can genuinely save businesses. However, the percentage of SBRs that transition to a plan has fallen, from 88% in 2022-23 to 79% in the first half of 2024-25, which may point to tougher creditor scrutiny or weaker proposals.

7. There are limits to what can be restructured

SBR cannot compromise contingent liabilities, such as guarantees that have not yet been called or future rent obligations under a lease. This can leave significant exposures untouched.

Other limitations include:

1. No protection for director personal guarantees;

2. Related-party debts are excluded from voting;

3. The plan cannot run longer than five years; and

4. Asset transfers to another company are restricted to prevent illegal phoenix activity.

These restrictions mean SBR works best for businesses with a clear, manageable pool of current unsecured debts.

Be aware, there is a fine line between a valid, healthy SBR and an attempt to phoenix. Phoenixing is an illegal practice where a company’s assets are shifted from an insolvent business to a new entity for little or no value, leaving the old company’s creditors unpaid. This deprives creditors of the money they are owed and undermines the restructuring process.

The ATO actively targets this behaviour. In 2023-24, the ATO’s Phoenix Taskforce completed over 1,500 audits and reviews, collected more than $137 million in cash, received more than 3,700 referrals of suspected illegal phoenix activity and shared 218 disclosures of information between agencies to help identify offenders (ATO Phoenix Taskforce). Illegal phoenix activity can involve breaches of directors’ duties under the Corporations Act 2001 (Cth), including failing to prevent creditor-defeating dispositions, fraudulent concealment or removal of assets and fraud by company officers, with penalties of up to 15 years’ imprisonment and substantial fines. Read more about what constitutes illegal phoenix activity on the ASIC website.

Directors should be cautious of advisers who promote schemes to “wipe debts” and continue trading, as such advice can lead to serious breaches of the law. Anyone involved, including advisers, valuers, liquidators, or dummy directors, can face the same penalties as the company’s directors if they assist or encourage illegal phoenix activity.

Key Takeaways

SBR offers directors of eligible companies a practical, controlled way to deal with insolvency risk without immediately handing the keys to an external administrator. Despite its quick growth, the high plan-completion rates and potential to save viable businesses, it’s not a one-size-fits-all solution.

Directors should:

1. Assess eligibility early, especially liabilities, tax lodgements and employee entitlements.

2. Understand their creditor mix, especially the role of the ATO.

3. Prepare a realistic plan that addresses the causes of distress, not just the debt.

4. Seek specialist advice before starting as mistakes can be costly and eligibility rules unforgiving.

Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.

We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.

If your business is under financial pressure, acting early is critical. Contact Empirical Legal to discuss whether SBR could help you protect your company’s future.

Reach out to Empirical Legal today.