Contents
Running your own small business takes courage, vision and a lot of hard work. But even with the best planning, things can take a turn – unexpected costs, late payments, or a sudden dip in sales can put real pressure on your business’s finances. If debt is starting to mount and you’re feeling overwhelmed, you’re not alone. Many Australian small businesses face financial challenges at some point, especially in tough economic climates.
The good news is that Australia’s small business debt restructuring process is designed to offer a life-line, helping viable businesses get back on their feet without the stigma or consequences of formal insolvency. This guide explains what debt restructuring is, how it works, and the legal steps you’ll need to follow. We’ll also outline the role of a restructuring practitioner and what to expect at each stage, so you can make informed decisions and protect your business.
If you’re worried about business debt, keep reading to learn how the restructuring process works and how you can confidently take steps towards recovery – with Sprintlaw here to support you every step of the way.
What Is Small Business Debt Restructuring?
Small business debt restructuring is a formal process under Australian law that allows eligible businesses to renegotiate their debts and pay creditors over time while continuing to trade. Unlike liquidation (where your company is wound up and assets sold), debt restructuring helps businesses that are fundamentally viable but currently struggling with cash flow or mounting debt.
This process was introduced as part of a major reform to Australia’s insolvency laws, designed to give small companies a fair chance to survive financial hardship. The system offers a simplified, less expensive way for small businesses to restructure – helping you avoid the harsh consequences of traditional insolvency or administration.
Who Is Eligible for Small Business Debt Restructuring?
Not every business can access this process. Generally, your company must:
- Be an incorporated company (for example, a Pty Ltd), not a sole trader or partnership.
- Owe less than $1 million in total liabilities, including secured and unsecured debts (but not employee entitlements).
- Be insolvent or likely to become insolvent soon (i.e., unable to pay debts as they fall due).
- Have up-to-date tax lodgements and payments, as well as employee entitlements (superannuation, wages, leave) paid in full.
If you think your company may be eligible, it’s important to act early. The sooner you get advice, the more likely you can preserve your business and employment for yourself and your employees.
How Does the Small Business Debt Restructuring Process Work?
The process is fairly structured, but broken down into clear steps. Here’s an overview:
- Appoint a Small Business Restructuring Practitioner (SBRP): To begin, the company’s directors appoint a registered SBRP (this could be a registered liquidator). The SBRP supports you in developing a plan, liaising with creditors, and ensuring compliance.
- Moratorium on Unsecured Debts: Once the SBRP appointment is public, your creditors can’t take legal action to recover their debts (including court proceedings or winding-up applications) for a set period, giving you breathing space.
- Prepare a Debt Restructuring Plan: With your SBRP, you draw up a proposed plan outlining how you will pay back creditors, how much they’ll receive (often less than 100 cents in the dollar), and a schedule for repayments. The plan must be achievable and based on your current and projected business performance.
- Creditor Approval: Your plan is sent to creditors, who have 15 business days to accept or reject it. Acceptance requires more than 50% of creditors (by value) to vote in favour.
- Implement the Plan: If creditors approve, you stick to the plan. If not, you may need to consider other insolvency options like voluntary administration or liquidation.
Throughout this process, your SBRP will ensure all legal requirements are met and that your obligations as a director remain clear. For detailed information on how administration and insolvency work, read our guide to insolvency in Australia.
What Is a Small Business Restructuring Practitioner?
A small business restructuring practitioner (SBRP) is a registered professional (usually a liquidator) who is approved by ASIC to help companies through the debt restructuring process. Their main role is to work with directors to develop a plan, liaise with creditors, and oversee the process to protect the interests of creditors, employees and the company itself.
Your SBRP’s responsibilities include:
- Assessing your eligibility for restructuring.
- Helping prepare the restructuring plan and the required company and financial statements.
- Reviewing the business to ensure it is viable and the plan is realistic.
- Sending documents and plans to creditors, managing the approval process.
- Overseeing compliance with the plan once underway.
- Reporting any illegal or improper conduct to ASIC.
Choosing the right SBRP is crucial – they should be collaborative, communicative, and experienced in small business finance and insolvency law. If you’re unsure where to start, get in touch for a recommendation.
What Are the Legal Steps for Small Business Debt Restructuring?
Legal compliance is a cornerstone of the debt restructuring process. Here’s what you’ll need to cover:
- Board Resolution: The company’s directors must formally resolve to enter debt restructuring and appoint a SBRP.
- Notification: You must inform ASIC, employees and creditors that the company is entering a restructuring process and an SBRP has been appointed.
- Prepare a Restructuring Plan: This includes company accounts, a list of creditors, the proposed repayment amount, and a schedule (with help from your SBRP).
- Disclosure: The plan must be honest, complete and realistic. False or misleading statements are a serious offence.
- Creditor Vote: Creditors assess and vote within the prescribed timeframe. All legally required documents must be submitted.
- Follow Through: If approved, you’re legally obliged to adhere to the agreed payments. If you default, the plan can end and creditors may pursue other remedies.
It’s important to document every stage – from resolutions and notices to creditor correspondence – so you can demonstrate proper process and protect yourself as a director.
What Are the Benefits and Risks of Debt Restructuring Compared with Other Options?
Key Benefits:
- You remain in control of your business (a major difference from voluntary administration).
- Your business can continue trading, protecting brand value and jobs.
- It keeps your options open: if restructuring isn’t viable, you can still move to voluntary administration or liquidation.
- It’s generally faster and more cost-effective than traditional insolvency procedures.
- It signals to suppliers and customers that you’re taking responsible action.
Risks and Limitations:
- The business must be viable – restructuring can’t fix a fundamentally unprofitable model.
- The process is only available to incorporated companies, and for debts under $1 million.
- If the company defaults on the plan, creditors can take action or push for liquidation.
- Directors must pay employee entitlements and make tax lodgements before starting, which may require an upfront cash injection.
- Your restructuring plan’s details (including debts) become publicly available documents.
If you’re not sure if your business is eligible – or if debt restructuring is the best path – consult a trusted advisor or insolvency lawyer early. Read more about overcoming business insolvency here.
Do I Need Legal Advice for Small Business Debt Restructuring?
Because the process is formal and subject to complex regulations, we strongly recommend you seek legal advice as early as possible. An experienced business lawyer can help you:
- Understand your obligations and liabilities as a director.
- Prepare meeting minutes, notices and creditor communications correctly.
- Assess if you meet eligibility and compliance requirements (tax lodgements, employee entitlements, company accounts).
- Engage with the right SBRP for your business.
- Draft and review the restructuring plan to ensure it’s realistic and legally sound.
- Protect your interests if things become adversarial with creditors.
- Pivot to alternative insolvency strategies if debt restructuring isn’t successful.
If you need support with restructuring, insolvency, or understanding your company’s liability, Sprintlaw is here to guide you through the process.
What Legal Documents Will I Need for Small Business Debt Restructuring?
While each company’s situation is unique, most businesses going through restructuring will require the following legal documents:
- Directors’ Resolution: Formal resolution appointing a small business restructuring practitioner and entering the process.
- Notice of Appointing Restructuring Practitioner: Required by ASIC and must be provided to creditors, employees and, in some cases, the public (for transparency).
- Restructuring Plan: A written proposal to creditors, including payment offers and supporting evidence of viability. Must comply with legislative format.
- Company Financial Statements: Accurate and up-to-date. Includes balance sheet, profit and loss, cash flow, and list of creditors.
- Creditor Statements and Correspondence: Documenting offers, meetings, objections and the final voting outcome.
- Compliance Statements: Evidence that employee entitlements are paid and tax obligations met (required before appointment).
Outside of restructuring, it’s also important to ensure your general business contracts and legal documents (such as customer agreements, employment contracts, and privacy policies) are in good shape – especially as part of a broader turnaround or business improvement plan.
How Can I Prepare My Business for Debt Restructuring?
If you’re considering small business debt restructuring, preparation is key. Here’s what you should do:
- Review Your Finances: Get up-to-date with all bookkeeping, tax lodgements, and employee payments. These must be fully paid before you can enter restructuring.
- Get Expert Advice: Speak to your accountant, business advisor, or a trusted legal expert who specialises in business restructuring or insolvency.
- Engage with a Small Business Restructuring Practitioner: Early consultation helps confirm eligibility and gives you the time to develop the strongest possible plan.
- Examine Your Business Model: Work out if the business is fundamentally viable. If so, outline operational changes (cost savings, new revenue streams, etc.) that can be presented as part of your restructuring plan.
- Communicate Proactively: Be open and honest with stakeholders (staff, suppliers, major customers). This builds trust and can help when it comes time to negotiate repayment plans.
- Prepare Key Documents: Collate current financials, lists of creditors, outstanding debts, and any existing customer or supplier contracts.
The more prepared you are before formal restructuring, the faster and more smoothly the process will go.
What If Debt Restructuring Fails or Isn’t Right for My Business?
If debt restructuring isn’t approved by your creditors, or your business isn’t eligible, you may need to consider other options such as:
- Voluntary Administration: An independent administrator takes control and works with creditors to try to rescue the business or achieve a better result than liquidation.
- Liquidation: If your company can’t be saved, it may be necessary to wind up and distribute any remaining assets to creditors.
- Informal Workouts: Sometimes you can negotiate directly with creditors for reduced payments or extended terms without entering a formal process. This is informal and riskier but may suit some businesses.
Each option comes with its own risks and obligations for company directors. For more, see our breakdown of business insolvency pathways.
Key Takeaways
- Small business debt restructuring in Australia provides a formal, affordable way for viable companies to renegotiate debts and avoid liquidation.
- You’ll need to engage a registered small business restructuring practitioner to develop and oversee your plan.
- Eligibility requirements include: operating as a company, having less than $1 million in liabilities, and paying employee entitlements and tax lodgements up to date.
- The process includes director resolutions, creditor voting, and strict documentation requirements – legal advice is critical for compliance.
- A successful restructuring plan lets your business trade on with less debt, but if it fails, alternative insolvency procedures may be necessary.
- Early expert advice and preparation are key to maximising your business’s chance of survival and protecting your own interests as a director.
If you would like a consultation about small business debt restructuring for your company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
Meet Our Lawyers for Business Set Up
Get in touch now!
We'll get back to you within 1 business day.
Book in a free consultation with us to discuss your legal needs.