Small Business Restructuring: What you need to know | Webinar

Restructuring Realities

Australian small businesses are under siege. Insolvencies have climbed sharply since 2022, with the end of COVID-era supports exposing vulnerabilities. The small business restructuring (SBR) process, launched in January 2021, allows eligible firms—those with under $1 million in liabilities excluding employee entitlements—to propose debt compromises while directors retain control. Uptake lagged initially but exploded: from 448 cases in 2022-23 to 1,425 in 2023-24, with forecasts hitting 3,000 for 2024-25. Early 2026 data shows a 37% year-on-year drop, yet monthly appointments still average over 200.

What sparked this urgency? A key trigger came on July 1, 2025, when deductions for ATO interest charges—general interest charge (GIC) and shortfall interest charge (SIC)—were scrapped. These rates hover around 10.65%, turning overdue tax debts into a compounding burden. The ATO, holding stakes in 89% of cases, ramped up enforcement in April 2025, deploying private collectors and issuing departure prohibition orders. This shift from leniency to aggression has pushed distressed firms toward SBR as a shield against liquidation.

The impacts ripple wide. Construction, retail, and hospitality sectors dominate, accounting for over 50% of cases. Successful plans—92% fulfilled per ASIC's June 2025 review of 3,388 appointments—preserve jobs and operations, with 93% of firms still registered post-completion. Creditors recover an average 15 cents on the dollar, far better than liquidation's typical scraps. Yet failures sting: rejected plans, up from 9% to 14%, often lead to voluntary administration or winding up, exposing directors to personal liability for trading while insolvent.

Deadlines loom large. Firms have 20 business days post-appointment to craft a plan, with the ATO demanding drafts five days before creditor issuance. Costs are leaner than alternatives—professional fees often under $50,000 versus voluntary administration's $100,000-plus—but inaction risks dire consequences: asset seizures, director bans, or forced closures. By December 2024, over $101 million flowed back to creditors, underscoring the regime's role in economic stability.

Beneath the surface lie frictions. The ATO acts as gatekeeper, vetoing plans with poor compliance histories or suspect director loans—funds borrowed for personal use while accruing taxes. This scrutiny, tightened in 2025, aims to curb abuse but can doom viable rescues. Phoenixing risks—shuttering one firm to rebirth another debt-free—persist, with ASIC flagging data gaps that hinder detection. Trade-offs abound: director control speeds decisions but weakens creditor oversight, potentially favoring insiders. In construction, SBR preserves licenses that liquidation revokes, a boon amid housing shortages, yet critics argue it delays inevitable failures, propping up zombies at competitors' expense.