What Happens If a Small Business Restructure (SBR) Fails?
The Small Business Restructuring (SBR) process is designed to help viable small businesses in financial distress restructure their debts and continue trading. But not every plan succeeds. If an SBR fails — whether the plan is rejected by creditors, payments aren't made, or eligibility is lost — there are important legal and financial consequences for the business and its directors.
In this guide, we’ll explain what it means for an SBR to “fail,” what happens next, and what options remain for the company.
What Does It Mean for an SBR to Fail?
An SBR is considered to have failed if:
What Happens If the Plan Is Rejected?
The company exits the restructuring process.
Creditors regain full rights to pursue unpaid debts — including legal action, statutory demands, and winding up applications.
The directors remain in control, but with the SBR process no longer offering protection, the company is exposed.
The company must consider next steps urgently to avoid insolvency proceedings.
What Happens If the Plan Is Breached?
If a company misses repayments or fails to meet obligations under an approved SBR plan:
The plan terminates automatically, per the terms of the legislation (Corporations Act 2001, s 453M).
The company is immediately out of safe harbour protection.
Creditors are notified and can recommence or initiate recovery proceedings.
The SBRP may advise the directors on next steps, such as liquidation or voluntary administration.
What Are the Company’s Options After a Failed SBR?
After an SBR fails, directors must act quickly. Options include:
1. Voluntary Administration (VA)
A registered administrator takes control.
A new plan (Deed of Company Arrangement – DOCA) may be proposed.
Offers creditor protection during the administration period.
2. Creditors’ Voluntary Liquidation
The company is wound up voluntarily.
A liquidator sells company assets and distributes proceeds to creditors.
Directors’ conduct and potential insolvent trading are reviewed.
3. Informal Arrangements / Refinancing
May be negotiated directly with creditors or via a broker.
Less protection than formal processes but offers flexibility.
What Directors Need to Know
SBR is a one-shot process – if it fails, re-entry is not immediate (a new SBR cannot be commenced within 7 years).
Directors must avoid insolvent trading — continuing to trade while insolvent can lead to personal liability.
There are serious consequences if post-SBR action isn't taken (e.g. ATO garnishee notices, statutory demands).
How to Avoid SBR Failure
Ensure your proposal is realistic and affordable.
Stay up to date on ATO lodgements and compliance.
Communicate regularly with the Small Business Restructuring Practitioner (SBRP).
Be honest with creditors — transparency builds trust.
Have a cash flow forecast to support your plan.
References
ASIC – Restructuring and the Restructuring Plan
https://asic.gov.auCorporations Act 2001 (Cth) – Part 5.3B
https://www.legislation.gov.au/Details/C2021A00001ARITA – Small Business Restructuring Guide
https://www.arita.com.au/ATO – Insolvency and Restructuring Advice for Directors
https://www.ato.gov.au
