Small Business Restructuring Guide
and Top FAQS

For a business to restructure, it means making strategic changes to its financial or operational setup in order to overcome challenges and ensure long-term viability. This process can help businesses regain control, manage debt more effectively, and streamline operations for improved performance.

At de Jonge Read, we project manage all different types of restructuring but typically business restructuring involves:

1. Financial Restructuring
   This is where we help you negotiate with creditors, including the ATO, to reduce or restructure your debts, allowing your business to continue operating. Our goal is to ease the pressure on your cash flow by creating a workable repayment plan or settlement agreement.
2. Retaining Control
   An SBR process is a debtor-in-possession model. This allows directors to remain in control of the company while working with a licensed practitioner to negotiate with creditors. This allows you to maintain customer relationships and work towards business recovery without significant disruption.
3. Protecting the Business
   Restructuring is ultimately about preserving the future of your business. By addressing financial challenges head-on, we help you avoid liquidation and ensure the business can continue operating, providing the time and breathing space needed for recovery.

At de Jonge Read, we focus on delivering a practical and supportive restructuring process, empowering business owners to regain control and confidently move forward.

To be eligible for a small business restructure in Australia, your business must meet the following criteria:

• Incorporation: The business must be operated as a company;
• Financial Distress: The business must be insolvent or likely to become insolvent;
• Liabilities: The business must be less than $1 million in debt to unsecured creditors, including potential shortfall on secured debts, but excluding any contingent liabilities;
• Compliance: The business must be up to date with tax lodgements and payment of employee entitlements; and
• Resolution: The business must resolve to appoint an SBRP.

The timeline for restructuring a small business through the SBR process typically spans between 45 and 90 days. This timeframe can vary depending on the complexity of the business’s financial situation and the level of creditor cooperation, but the process is designed to be both efficient and effective.

Here’s a breakdown of what to expect:

1. Initial Assessment and Planning
   The process begins with a thorough review of the business’s business’s financial position. At de Jonge Read, we work with you to identify financial pressures and determine if your business is eligible for an SBR. If eligible, we will help you engage an SBRP.
2. Proposal to Creditors
   Within 20 business days, the SBRP works with you to create a restructuring plan that addresses outstanding unsecured debts, including those to the ATO. This proposal is then submitted to creditors for their consideration. Creditors are typically given another 15 business days to review and vote on the proposal.
3. Creditor Approval and Plan Implementation
   If the proposal is accepted by more than 50% of creditors by dollar value, the plan comes into effect and is binding on all unsecured creditors. The plan is then implemented with the obligations outlined in the plan, which may include a lump sum and/or monthly payments over a period not exceeding 3 years.

Overall, the SBR process is designed to be straightforward and keep your business running while you address financial challenges. With de Jonge Read’s experience and support, we help you navigate the process smoothly, ensuring you remain compliant and focused on the future success of your business.

When considering a business restructure, asking the right questions can help ensure that the process is successful and tailored to the specific needs of your business. Here are key questions to consider during a restructure:

1. Is restructuring the best option for my business?
   Before beginning the process, it’s crucial to assess whether restructuring is the right choice. Ask yourself whether the business is still viable, or if the challenges you’re facing are more temporary. At de Jonge Read, we help you evaluate if restructuring can provide the relief you need or if other options might be more suitable.
2. What debts can be restructured
   Understanding which debts are eligible for restructuring is essential. Can tax debts with the ATO be included? What about trade creditors or suppliers? A clear breakdown of your obligations helps determine what can realistically be restructured under an SBR.
3. How will the restructuring plan affect my day-to-day operations?
   A key benefit of SBR is that directors remain in control of their business throughout the process. However, it’s important to ask how the restructuring will impact the operational side of the business. Will certain cost-cutting measures or streamlining efforts be needed? Will employees or customers be affected?
4. What is the expected timeline for the restructuring process?
   While the SBR process is designed to be efficient, it’s important to ask how long the entire process will take, from developing the plan to negotiating with creditors and implementing the final arrangement. Knowing the timeline helps set expectations and keeps the process on track.
5. What are the risks of restructuring?
   While restructuring can provide a lifeline for businesses, it’s important to ask about the potential risks. Could it damage your business’s business’s reputation? Will it impact key relationships with suppliers or customers? Understanding the risks allows you to weigh the pros and cons before proceeding.
6. What are the costs involved in the restructuring process?
   It’s important to understand the financial commitment involved in restructuring. What are the costs associated with engaging an SBRP and other professionals? Ensuring that the cost of restructuring is manageable and that the process delivers a meaningful return on investment is crucial for any business.
   

At de Jonge Read, we work closely with directors to address all the above questions and provide clear, transparent and actionable answers. Our focus is on helping businesses understand the restructuring process, minimize risks, and create a viable path forward.

When a business decides to restructure, the process is designed to provide relief from financial pressures while allowing the business to continue trading. Here’s what typically happens during an SBR, with the support of de Jonge Read:

1. Initial Assessment
   The first step is to assess whether your business is eligible for restructuring. We work with you to evaluate your financial situation, including debts to creditors like the ATO, and determine if restructuring is the right option. This phase involves a detailed review of your business’s business’s assets, liabilities, and overall viability.
2. Engaging an Small Business Restructuring Practitioner (SBRP)
   Once the decision is made to proceed with restructuring, a Small Business Restructuring Practitioner (SBRP) is appointed. The SBRP will guide you through the formal restructuring process and ensure that all legal and financial requirements are met. They act as an independent party who works with you to develop and oversee the restructuring plan.
3. Creating a Restructuring Plan
   The next step is developing a restructuring plan tailored to your business’s business’s needs. This plan outlines how your business intends to repay its unsecured debts, including any tax liabilities, within a manageable timeframe. We collaborate with the SBRP to ensure the plan is realistic, fair, and addresses the concerns of your creditors while allowing you to continue trading.
4. Submitting the Plan to Creditors
   Once the plan is ready, it’s it’s submitted to your creditors, including the ATO. Creditors are given a period of 15 to 20 business days to review and vote on the proposed restructuring plan. The approval of the majority of creditors is required for the plan to proceed. This phase is critical as creditor cooperation is key to the success of the restructure.
5. Continuing Business Operations
   During the restructuring process, one of the key advantages of an SBR is that the directors remain in control of the business. While the restructuring plan is being negotiated, you can continue running your day-to-day operations with minimal disruption. This means you can keep trading, service your clients, and retain your staff while working through the financial challenges.
6. Creditor Response and Plan Approval
   If the creditors approve the plan, it goes into effect. This often involves revised payment terms, debt reductions, or extended repayment schedules, giving the business much-needed breathing space. If any adjustments are required to the plan based on creditor feedback, we work with you and the SBRP to ensure these changes are addressed effectively.
7. Implementing the Plan
   Once the restructuring plan is approved, it’s time to implement it. This means following the agreed terms for repaying creditors while continuing to operate the business. The SBRP oversees this phase to ensure that the business complies with the terms of the plan, and we provide ongoing support to make sure everything stays on track.
8. Monitoring and Adjustments
   Throughout the restructuring period, it’s essential to monitor the business’s performance. Regular check-ins with the SBRP ensure that the business is meeting its obligations under the restructuring plan. If necessary, adjustments can be made to the plan to reflect changes in the business’s circumstances or market conditions.
9. Emerging from Restructuring
   The ultimate goal of a business restructure is to emerge stronger and more stable. By the end of the process, your business should be in a better financial position, with debts managed or reduced, and operations streamlined. You’ll have a clear path forward, free from the immediate financial pressures that led to the restructuring.

At de Jonge Read, we provide tailored support throughout every stage of the restructuring process. Our goal is to help businesses regain control, reduce financial stress, and set up for long-term success, all while continuing to trade and operate with confidence.

An SBRP is an independent professional responsible for overseeing and ensuring the SBR process is carried out correctly. While the SBRP handles compliance and manages creditor communications, the de Jonge Read team works closely with you to guide your business through the restructuring, ensuring you remain in control and receive expert support throughout the process.

How de Jonge Read and the SBRP support your business:

1. Eligibility Assessment
   We assess your business’s financial position, including debts, assets, and solvency, to determine whether SBR is the right solution for you.
2. Developing a Restructuring Plan
   Our team collaborates with you to develop a tailored plan to manage and repay unsecured debts, ensuring it is realistic and achievable for your business.
3. Liaising with Creditors
   de Jonge Read develops and submits the restructuring plan, while the SBRP handles creditor communications, ensuring a transparent and fair process.
4. Compliance and Oversight
   The SBRP ensures your business meets all legal and regulatory obligations, while we continue to support you through every stage of the restructuring.
5. Ongoing Support
   Once the restructuring plan is approved, de Jonge Read provides ongoing support to ensure you meet your commitments, with the SBRP monitoring compliance and progress.

At de Jonge Read, we work with you to appoint a trusted SBRP and ensure an experienced SBRP oversees the process. Our team is with you every step of the way, providing the clarity and confidence you need to protect your business and achieve the best possible outcome.

Once the appointment of an SBRP begins, it cannot be easily revoked. The process must be carried through to its conclusion. However, there are limited circumstances where an SBRP can be replaced. For instance, if the practitioner resigns, passes away, or becomes legally prohibited from continuing, the company directors may appoint a new SBRP.

Unlike with voluntary administrators or liquidators, creditors do not have the authority to remove or replace the SBRP. The directors retain control of the restructuring process, with the SBRP ensuring compliance and fairness throughout.

If you are considering replacing your SBRP or need advice on navigating the restructuring process, contact the de Jonge Read team today. We can guide you through each step to protect your business and ensure the process stays on track.

An SBRP must be a registered liquidator with the Australian Securities and Investments Commission (ASIC). Only company directors can appoint an SBRP, ensuring the practitioner has the expertise to manage financial restructuring and work effectively with creditors.

If you’re looking to appoint an SBRP, contact the de Jonge Read team for guidance in selecting the right professional for your business.

The process starts with the appointment of an SBRP. The director signs a declaration of eligibility. ASIC records are then updated and creditors are prevented from initiating or progressing any recovery action.

The director has 20 business days to prepare the restructuring plan. The proposal is then put to creditors who have the right to vote on it. Creditors have 15 business days to vote to approve or reject the plan.

The SBRP will work with the director to prepare a restructuring plan. This would be a proposal to present to creditors for the satisfaction of their debts. This may be payment in full over an extended period of time, a lump sum offer to be shared amongst creditors, the proceeds from the sale of an asset, a share of the proceeds from a legal claim if successful etc. The offer can be tailored in each case and could be a combination of some of the options available. The maximum term for payment of the offer is 3 years.

The SBRP does not have to assess the offer made to creditors other than to ensure that the payment/s can be met. They are not required to determine whether the offer is in the best interests of creditors or whether they may get more of their money back if they pursue legal action.

As mentioned earlier, the director has 20 business days to formulate the plan and present it to creditors. Creditors then have 15 business days to accept or reject the offer. Only those creditors who exercise their right to vote can influence the outcome. If the creditor does not vote, they are still bound to the outcome regardless of how much they are owed.

If the proposal is accepted by more than 50% of creditors who exercise their right to vote the offer is accepted and the company can continue to trade on.

One example of a business restructuring we did involve a small construction company facing mounting debt and cash flow issues due to unexpected project delays and increasing overhead costs. Despite these challenges, the company wanted to continue trading but needed a solution to manage its financial strain.

How Restructuring Helps:

de Jonge Read guided the company through the SBR process. We began by conducting a full financial review, identifying key debts that could be restructured. Working with an SBRP, we helped the directors create a formal plan to reduce their debt and settle liabilities with creditors, including the ATO.

Key Steps:

1. Debt Restructuring Plan
   We developed a manageable repayment schedule for unsecured creditors, giving the business the breathing room it needed.
2. Creditor Negotiations
   Creditors, including the ATO, accepted the proposal, allowing the business to continue trading.
3. Operational Adjustments
   We helped the directors streamline operations and reduce costs to stabilize the business for future success.

The Outcome:
The company successfully restructured its debts and avoided liquidation. The directors retained control, and with a solid plan in place, the business emerged with improved cash flow and a clear path forward.

At de Jonge Read, we enable businesses to restructure effectively, ensuring they remain operational and sustainable through challenging times.

You need to consider any ongoing relationship with creditors. Will they continue to supply goods and services while the offer is being prepared? If they are not paid in full, what does that mean for the relationship going forward? Will the creditor want to continue doing business with you? Are there alternate sources of supply?

Importantly, related parties cannot vote on the proposal. This means any debts owed to companies with the same directors and/or shareholders are not eligible to vote. The offer would need to be supported by unrelated parties.

During the business debt restructure period, the business can continue to trade as normal under the control of the director.

The business debt restructure process does not impact the position of secured creditors. If the creditor has security over the business, or a business asset, they can enforce their rights. The process also has no impact on the position of any personal guarantors. The guarantee is a separate obligation to pay. If a creditor does not receive payment in full from the company they can pursue the guarantor for any amount that remains owing.

For an SBR plan to be approved, more than 50% of creditors by value must vote in favour of the proposal. If the plan is not accepted, the restructuring process ends, and the protections that were in place during the process are lifted. This means creditors regain their rights to enforce their claims, including pursuing legal action or recovering outstanding debts.

Additionally, when the company exits the SBR process, directors lose the protection from personal liability for insolvent trading. Without the protections of the SBR process, directors who continue trading while the company is insolvent may face serious personal financial exposure. In such cases, directors often consider placing the company into voluntary administration or liquidation to manage creditor claims and protect themselves from personal liability.

If your plan is rejected, it’s critical to act quickly to explore your next steps. Options such as liquidation or voluntary administration should be considered to address outstanding debts and protect both the business and the directors from further financial risk.

Take action now – contact the de Jonge Read team to discuss your options and ensure you take the best steps for your business.

Funds for an SBR  plan can come from various sources, providing flexibility for businesses in financial distress. Often, the plan creates a pool of funds used to fully and finally settle unsecured creditor claims. There’s no strict rule about where the funds must come from, allowing businesses to tailor their approach.

Typical funding sources include:

• Company’s Cash Reserves
  If available, cash reserves can be used to meet creditor obligations.
• Director or Related Party Contributions
  Directors or related parties may inject personal funds to help meet the plan’s terms and keep the business solvent.
• Future Profits
  The business may propose to use projected future profits to fund the plan, provided it can demonstrate reliable revenue forecasts.
• Bank Refinancing
  External financing, such as loans or lines of credit, can provide the necessary funds to execute the plan.
• Asset Sales
  Non-essential assets or surplus inventory can be sold to raise the funds needed to pay creditors.

Each plan is tailored to the business’s unique situation, enabling companies to choose the best options to meet creditor expectations. If you’re exploring funding options for your restructuring plan, contact the de Jonge Read team today to discuss the best strategies for protecting your business and ensuring a smooth restructuring process.

No, creditors do not need to be paid in full under an SBR plan. Typically, the plan offers a “cents in the dollar” payment, meaning creditors receive a portion of the original debt, as agreed upon in the restructuring plan. This is often more than what creditors would expect if the business went into liquidation.

The objective of the plan is to strike a balance, providing creditors with a fair return while allowing the business to continue operating and recover financially. In most cases, creditors agree to a reduced payment because it represents a better outcome than liquidation.

The amount creditors receive depends on the company’s financial situation and the terms of the plan. Each plan is unique, reflecting the company’s circumstances and creditor expectations.

If you need guidance on structuring a plan that works for both your business and your creditors, reach out to the de Jonge Read team today for expert advice tailored to your needs.

Absolutely. At de Jonge Read, we’ve successfully completed numerous SBR plans, achieving significant debt reductions for our clients. For instance, between June and September 2024, we managed 12 SBRs, securing settlements between 15 to 26 cents on the dollar. These negotiations led to a total debt reduction of $5.1 million, allowing businesses to regain stability and continue trading with confidence.

The amount of debt reduction through an SBR plan depends on the financial situation of the business and the agreements made with creditors. At de Jonge Read, we specialise in crafting restructuring plans that secure meaningful reductions while ensuring the business remains operational. Our recent success—achieving a $5.1 million debt reduction across 12 cases—demonstrates our ability to deliver effective, tailored solutions that meet both business and creditor needs.

If you’re exploring Small Business Restructuring to reduce your business’s debt and safeguard its future, contact the de Jonge Read team today for expert advice based on proven success.

Yes, an SBR can be an effective solution for companies with significant ATO debt. Through the SBR process, businesses have the opportunity to restructure their debts, including those owed to the ATO, while maintaining control of the business and continuing operations.

Why SBR is a good solution for large ATO debts:

• Negotiated Debt Reduction
  An SBR plan allows businesses to negotiate a settlement with creditors, including the ATO, which may result in paying less than the full amount owed. This provides immediate financial relief and prevents further accumulation of penalties and interest.
• Continued Operations
  Unlike liquidation or voluntary administration, SBR enables the business to keep trading throughout the restructuring process, preserving jobs and the company’s future potential.
• Protection from Insolvent Trading
  Once the SBR process is initiated, directors are protected from personal liability for insolvent trading, provided they follow the SBR guidelines.
• Flexible Funding
  Businesses can use various sources to fund the repayment plan, such as future profits, external financing, or asset sales, making it easier to manage large debts like those owed to the ATO.

At de Jonge Read, we have extensive experience assisting businesses with large ATO debts, guiding them through the SBR process to achieve debt reductions while keeping the business on track.

If you’re dealing with a large ATO debt, contact the de Jonge Read team today to explore how SBR can help your business find a path to recovery.

While both Small Business Restructuring (SBR) and an ATO Payment Arrangement offer ways to manage tax debts, SBR provides a more comprehensive solution for businesses facing financial distress. Here’s why SBR can be a better option for your circumstance:

1. Debt Reduction vs. Full Repayment
   An ATO Payment Arrangement typically requires the business to repay the full amount of the tax debt plus any interest and penalties. In contrast, an SBR plan allows businesses to negotiate with creditors, including the ATO, to reduce the amount owed. This could result in paying only a portion of the debt, such as 15-26 cents on the dollar, offering immediate financial relief.
2. Comprehensive Debt Solution
   SBR doesn’t just address ATO debt; it includes all unsecured creditors, offering a complete solution for businesses under financial strain. A Payment Arrangement only deals with the ATO debt, leaving the company to manage other creditors separately, which may not fully resolve the financial issues.
3. Protection from Insolvent Trading
   When a business enters the SBR process, directors are protected from personal liability for insolvent trading. This protection is a significant benefit of the SBR process. An ATO payment arrangement does not offer this protection, meaning directors could still face personal exposure if the company continues to trade while insolvent.
4. Flexibility in Funding
   SBR allows businesses to use various sources, such as future profits, external financing, or asset sales, to fund the restructuring plan. A Payment Arrangement usually requires the business to make fixed, scheduled payments to the ATO, which may strain cash flow.
5. Continued Business Operations
   Unlike voluntary administration or liquidation, SBR enables businesses to continue trading while restructuring. This allows companies to preserve jobs, retain customers, and work towards long-term recovery, whereas a Payment Arrangement may require tighter cash flow management, impacting day-to-day operations.

At de Jonge Read, we have extensive experience guiding businesses through the SBR process, helping them achieve debt reductions and regain financial stability. If you’re facing ATO debt, contact the de Jonge Read team today to explore how SBR could be the right solution for your business.

An SBR can help avoid personal liability under a 21-Day DPN, but only if it’s a non-lockdown DPN. By entering the SBR process within 21 days, directors can avoid personal liability for unpaid ATO debts. However, if the DPN is a lockdown DPN—issued because required lodgements were not made on time—the SBR process will not remove personal liability for the debt. The only way to remit a lockdown DPN is to pay the debt in full.

If you’ve received a DPN, contact the de Jonge Read team today to explore your options and protect your position.

Yes, the ATO is generally supportive of the SBR process as it helps businesses manage tax debts while continuing to operate. SBR allows the ATO to recover a portion of the debt through a structured plan, which often provides a better outcome than liquidation.

If you’re considering SBR to address ATO debts, contact the de Jonge Read team today to explore how we can assist.

Entering into an SBR places a temporary halt on any winding-up actions. This moratorium stops creditors from pursuing legal claims, including winding up petitions, while the restructuring plan is developed and reviewed. If the plan is approved, it may help the company avoid liquidation entirely. However, if the plan fails or is rejected, creditors can resume winding-up proceedings.

If you’re facing a winding-up process, contact the de Jonge Read team for expert advice on how SBR can help protect your business.

A secured creditor, typically a bank or financier with security over company assets, cannot enforce their rights, such as selling company property, without the SBRP’s consent or court approval. While secured creditors retain their rights over assets, they are restricted from acting during the restructuring process.

Secured creditors are only impacted by the SBR plan if there’s a shortfall—where the asset’s value is less than the debt owed. The unsecured portion may then be included in the plan for negotiation.

For guidance on managing secured creditor claims, contact the de Jonge Read team today.

When evaluating an SBR plan, creditors focus on several key factors:

• Return on Debt
  Whether the plan offers a better return than what could be achieved through liquidation.
• Feasibility
  Whether the company is realistically able to meet its obligations under the proposed plan.
• Payment Timeliness
  How the repayment schedule is structured and whether payments can be made on time.
• Risk Reduction
  Whether the plan effectively reduces the risk of future insolvency and provides long-term stability.
• Past Compliance: The company’s history of meeting obligations, such as tax and debt repayments.

The SBRP provides creditors with important documents, including the restructuring plan, a proposal statement, and a declaration confirming the company’s eligibility for restructuring. Creditors then vote on the plan and verify the accuracy of their claims.

To ensure your restructuring plan meets creditor expectations and secures approval, contact the de Jonge Read team for expert guidance on this complex process.

Personal guarantees are not covered by an SBR plan. This means creditors can still pursue directors personally for these debts, even while the company is undergoing restructuring.

Directors may need to negotiate separately with creditors to address personal guarantees outside the SBR process.

If you’re dealing with personal guarantees alongside business debts, contact the de Jonge Read team for expert advice on protecting your personal assets.

Both SBR and VA offer ways for companies to address financial distress, but they differ in several key areas:

1. Control:
   • SBR: Directors retain control of the business throughout the restructuring process, allowing the company to continue trading while debts are restructured.
   • VA: Control is handed to an external administrator, who decides the future of the business, which may involve restructuring, sale, or liquidation.
2. Cost:
   • SBR: Typically more cost-effective. The process is streamlined to reduce administrative costs.
   • VA: Generally more expensive due to the involvement of external administrators and the broader assessment of the company’s financial position.
3. Focus:
   • SBR: Designed to help small businesses restructure their debts and continue trading, with a focus on regaining financial stability.
   • VA: Focuses on assessing the overall viability of the business. It may lead to restructuring, but it can also result in liquidation if the business is not considered viable.
4. Eligibility:
   • SBR: Limited to small businesses with total liabilities under $1 million and must have up-to-date tax lodgements and employee entitlements.
   • VA: Available to any business, regardless of size or debt level.
5. Creditor Involvement:
   • SBR: Creditors vote on the proposed restructuring plan, which is designed and managed by the directors and the restructuring practitioner.
   • VA: Creditors play a significant role in deciding the company’s future by voting on whether to accept a deed of company arrangement, continue administration, or move to liquidation.

For tailored advice on which option best suits your business, contact the de Jonge Read team today.