Can Creditors Reject an SBR Plan?

Yes — creditors can reject a Small Business Restructuring (SBR) plan, and their decision is a critical part of whether the restructure succeeds or fails.

Below is a comprehensive guide explaining how creditor approval works, when and why a plan may be rejected, and what happens next if it is.

How Does Creditor Approval Work in an SBR?

When a company proposes a restructuring plan, it must be reviewed by a Registered Small Business Restructuring Practitioner. That practitioner then:

1. Confirms the company meets eligibility requirements.

2. Helps the directors develop a formal restructuring plan.

3. Issues a proposal statement to creditors with full details.

4. Creditors are then given 15 business days to vote on the plan.

To be approved:

• The plan needs more than 50% in value of the voting creditors (by dollar amount), not by headcount.

• Only unsecured creditors are eligible to vote (excluding related parties).

If this majority is not achieved, the plan is automatically rejected.

Why Would Creditors Reject a Restructuring Plan?

Creditors may vote against an SBR plan for several reasons:

What Happens If Creditors Reject the Plan?

If creditors reject the plan:

• The company exits the restructuring process immediately.

• The moratorium (protection against legal action) ends.

• Creditors can resume enforcement actions (e.g., debt collection, legal proceedings, statutory demands).

• The company may need to consider Voluntary Administration, liquidation, or negotiating payment plans directly.

Can the Plan Be Re-submitted?

Not under the same process.

If creditors vote the plan down:

• The business would have to exit the current SBR process.

• It cannot submit another SBR for 7 years under current legislation (unless exceptions apply).

Tips for Improving Approval Chances

• Offer a realistic but attractive repayment percentage.

• Work with an experienced restructuring practitioner who can communicate effectively with creditors.

• Include a clear explanation of how the company will meet the plan’s terms.

• Be transparent and proactive with creditor concerns.

Final Word

While SBR is a powerful tool, creditor approval is not guaranteed. Businesses need to put forward a strong, fair proposal, supported by robust financials, to earn creditor trust and secure a second chance.

References

• ASIC – Small Business Restructuring

• Corporations Act 2001 (Cth), Part 5.3B

• Australian Restructuring Insolvency & Turnaround Association (ARITA)