What Happens After a Small Business Restructure (SBR) Is Approved?

27 June

The Small Business Restructure (SBR) process, introduced in 2021, offers eligible businesses a simplified pathway to deal with tax and other unsecured debts while continuing to trade. But what actually happens after the restructuring plan is approved by creditors and accepted by the ATO?

Here is a comprehensive breakdown of the post-approval phase:

1. Immediate Legal Protection

Once a restructuring plan is approved, the company gains protection from legal action by unsecured creditors (including the ATO), provided they follow the terms of the plan. This means:

Creditors cannot initiate or continue proceedings.
ATO garnishees are paused or withdrawn.
Directors have assurance that the business can trade on without the threat of winding up.

2. Implementation of the Plan

The company must begin making payments according to the restructuring plan's terms. Key features include:

A set percentage of debt (commonly reduced by up to 70%) is to be repaid.
Repayment terms typically range from 3 to 36 months.
Payments are made to the restructuring practitioner, who then distributes them to creditors.

Failure to meet the payment obligations can result in termination of the plan, placing the business back at risk of creditor action.

3. Ongoing Monitoring and Reporting

Although day-to-day control remains with the directors, the restructuring practitioner oversees the plan. Their role includes:

Monitoring that payments are made on time.
Confirming that business conduct remains lawful.
Providing regular updates to creditors if required.

This ensures that creditors maintain confidence in the process.

4. Continuation of Business Operations

One of the major benefits of the SBR process is that trading continues with minimal disruption. Post-approval:

The business retains its staff and assets.
It may improve cash flow due to reduced debt and frozen interest.
Directors can seek new finance or negotiate better supplier terms.

5. Creditor Payments and Finalisation

After the final payment is made under the plan:

Creditors receive their proportional payment as per the plan.
The balance of unpaid debt is written off.
The company is released from further liability.

Once this occurs, the SBR is deemed complete.

6. Record Keeping and Future Implications

While an SBR is not considered a formal insolvency like liquidation, there may be credit file notations indicating a restructuring process was undertaken. Directors should:

Retain all documentation for future audits.
Disclose the restructure if applying for credit, depending on lender requirements.

Businesses can only undertake one SBR every 7 years, so it’s essential to manage post-restructure finances prudently.

Conclusion

An approved SBR is not the end but the beginning of a carefully managed recovery journey. It gives viable small businesses the breathing space to reset, rebuild and return to profitability without the crushing weight of ATO and unsecured debt.

References:

Australian Securities and Investments Commission (ASIC): https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/restructuring-and-the-restructuring-plan/
Australian Government, Treasury: https://treasury.gov.au/consultation/c2020-134006
Australian Restructuring Insolvency and Turnaround Association (ARITA): https://arita.com.au
Insolvency Practice Rules (Corporations) 2016 (Cth)

Monica Nava