Common Mistakes Business Owners Make During a Small Business Restructure (SBR)
The Small Business Restructuring (SBR) process offers struggling companies a second chance to deal with mounting debt—particularly ATO debt—while keeping control of their business. However, like any formal process, mistakes can reduce your chances of success or even result in the plan being rejected.
If you're considering SBR, here are the most common mistakes business owners make—and how to avoid them.
1. Waiting Too Long to Act
Problem: Many directors delay seeking help until it’s too late—either after a statutory demand, a Director Penalty Notice (DPN), or creditor legal action.
Why It’s a Mistake:
Delaying limits your options and increases the chance of forced liquidation.
Avoid It:
Engage a restructuring practitioner early when signs of insolvency appear—e.g., unpaid tax, superannuation, or creditors.
2. Not Understanding Eligibility
Problem: Business owners apply for SBR without confirming they meet key criteria.
Why It’s a Mistake:
Applications can be rejected, and time wasted, if the business exceeds the $1 million liability threshold or hasn't met lodgement obligations.
Avoid It:
Ensure the business:
Has total liabilities under $1 million (including tax and trade debts)
Has up-to-date ATO lodgements
Has not undertaken an SBR or simplified liquidation in the past 7 years
Check ASIC’s SBR Eligibility Criteria
3. Lack of Clear Financial Records
Problem: Submitting outdated or inaccurate records to the restructuring practitioner.
Why It’s a Mistake:
Inaccurate data makes it difficult to draft a credible plan and assess viability.
Avoid It:
Ensure bookkeeping is up to date and all ATO lodgements are current before starting the process.
4. Proposing an Unrealistic Repayment Plan
Problem: Offering repayment terms the company can’t realistically afford.
Why It’s a Mistake:
Creditors are more likely to reject the plan if it lacks evidence of achievability.
Avoid It:
Work with your practitioner to create a cash flow-based repayment proposal that the business can sustain over 3 years.
5. Not Communicating With Creditors
Problem: Leaving communication to the last minute or ignoring creditor concerns.
Why It’s a Mistake:
Creditor trust is essential. Poor communication can lead to a “no” vote, which sinks the restructure.
Avoid It:
While the restructuring practitioner handles the formal process, directors should be prepared to support creditor engagement.
6. Failing to Comply With the Restructuring Plan
Problem: After the plan is approved, the business fails to make payments or meet conditions.
Why It’s a Mistake:
This leads to plan termination and possible liquidation.
Avoid It:
Track payment deadlines, maintain strong cash flow, and seek help early if the business falls behind.
7. Assuming the Practitioner Handles Everything
Problem: Believing the SBR practitioner is responsible for fixing the business.
Why It’s a Mistake:
The practitioner manages the restructure—not daily operations. Directors are still responsible for running the business and meeting obligations.
Avoid It:
Stay engaged throughout the process and work closely with your accountant and the practitioner.
8. Failing to Plan for Life After SBR
Problem: No post-restructure strategy in place.
Why It’s a Mistake:
Without operational changes, businesses risk falling back into financial trouble.
Avoid It:
Build a growth and cost-management strategy that ensures sustainability after the plan is complete.
Final Thoughts
The Small Business Restructure is one of the most powerful tools available to businesses in financial distress. But to get the best outcome, directors must take the process seriously, understand their obligations, and avoid common traps.
If in doubt, speak with a qualified Small Business Restructuring Practitioner early to avoid irreversible mistakes.
References
Corporations Act 2001 (Cth), Pt 5.3B
ATO: Support for businesses with tax debts
Treasury: Insolvency Reforms for Small Business
