Can Creditors Reject a Small Business Restructuring (SBR) Plan?

When a financially distressed small business proposes a Small Business Restructuring (SBR) Plan, it must seek approval from its creditors. While this process is designed to provide relief for viable businesses and returns for creditors, the role of creditors is critical — and yes, they can reject the plan.

In this article, we’ll break down how creditor voting works in the SBR process, under what circumstances they may reject a proposal, and what happens if the plan is not approved.

Quick Overview: What Is an SBR Plan?

An SBR Plan is part of Australia’s simplified restructuring process, introduced in January 2021 to help eligible small businesses in financial distress restructure their debts without entering full insolvency or liquidation.

The process is:

• Available to companies with liabilities under $1 million

• Managed by a Small Business Restructuring Practitioner (SBRP)

• Designed to let businesses continue trading while proposing a binding repayment plan to creditors (e.g., ATO, suppliers)

Can Creditors Reject the Plan?

Yes — creditors can reject an SBR plan if the majority do not vote in favour within the 15-business-day voting period.

For a plan to be approved:

• A majority in value of creditors who vote must accept the proposal.

• Voting is based on the value of debt owed to each creditor (not number of creditors).

• Only unrelated, admissible creditors are eligible to vote.

Reasons Why Creditors May Reject a Plan

1. The repayment offer is too low
   If creditors believe the proposed payments are unreasonably small compared to what they may recover through liquidation or legal recovery, they may vote against it.

2. Insufficient disclosure or transparency
   If the plan lacks detail, supporting evidence, or financials that prove the business can meet the proposed repayments.

3. Poor trading history or director conduct
   Prior misconduct, non-payment history, or poor relations with creditors may impact trust and increase resistance.

4. Alternative recovery options may seem better
   In some cases, especially with asset-rich companies, creditors may believe liquidation would provide a better outcome.

5. Non-compliance with lodgement requirements
   If the business hasn't lodged its ATO returns or financials correctly, this may lead to plan rejection.

What Happens If Creditors Reject the Plan?

If the restructuring plan is not accepted by the required majority of creditors:

• The plan does not proceed and has no legal effect.

• The company exits the restructuring process.

• Directors must consider alternative options, such as:

  • Voluntary Administration

  • Voluntary Liquidation

  • Informal arrangements or refinancing

There is no automatic winding up upon rejection — but creditors regain their rights to pursue recovery, including court action or issuing statutory demands.

How to Maximise Approval Chances

• Work with a qualified SBRP who can draft a fair, transparent plan.

• Include accurate financials and projections to support your ability to pay.

• Communicate proactively with creditors, especially key ones like the ATO.

• Offer a genuine and commercially reasonable repayment percentage.

Final Thoughts

While creditors can absolutely reject an SBR plan, most are open to accepting proposals that offer better outcomes than liquidation, particularly when the business shows viability, transparency, and a willingness to engage.

For directors, it’s vital to prepare thoroughly, work closely with a restructuring professional, and craft a realistic proposal — because once rejected, options become more limited.

References

1. Australian Securities & Investments Commission (ASIC) – Restructuring and the Restructuring Plan

2. Australian Government – Treasury – Insolvency Reforms for Small Business

3. Corporations Act 2001 (Cth), Part 5.3B – Restructuring Process Legislation

4. Australian Restructuring Insolvency & Turnaround Association (ARITA) – SBR Framework Summary