Small Business Restructuring: The Option Most Owners With ATO Debt Do Not Know They Have

If your company owes the ATO more than it can realistically pay, you have probably been told there are two choices: keep negotiating payment plans you cannot sustain, or liquidate.

There is a third. Small business restructuring, also known as the SBR, lets you compromise the debt, pay a fraction of it over time, and keep running the business—and stay in control the whole way through.

Here is how it works, who qualifies, and the timing traps that decide whether it saves you.

The short version

• Small business restructuring sits in Part 5.3B of the Corporations Act 2001. It has been available since 1 January 2021 and is now used thousands of times a year.
• You keep running the company. Unlike voluntary administration, control does not pass to an external practitioner — the restructuring practitioner advises, certifies and administers, but you remain the director in charge.
• Broad eligibility: total liabilities of $1 million or less, all tax lodgements up to date, employee entitlements that are due and payable paid in full, and no prior use of the process in seven years.
• ATO debt is unsecured, so it is compromised by a plan. In practice the ATO is usually the largest creditor and therefore the deciding vote.
• The timetable is short — roughly 35 business days from appointment to a creditor vote. The preparation you do before appointment is what determines the outcome.

What small business restructuring actually is

Small business restructuring, usually shortened to SBR, is a formal insolvency process introduced in Part 5.3B of the Corporations Act 2001 on 1 January 2021. It was designed for exactly the situation most owners with serious ATO debt are in: a business that can trade profitably going forward, carrying a legacy debt it will never clear out of ordinary cash flow.

The mechanism is straightforward. You appoint a small business restructuring practitioner. With their help, you put a proposal to your unsecured creditors — typically an offer to pay a set number of cents in the dollar, either as a lump sum or over up to three years. Creditors vote. If the plan passes, it binds every unsecured creditor, including those who voted against it, and the balance of the debt is extinguished on completion.

The feature that makes it different

In a voluntary administration, the administrator takes control of the company. You stop being the person who decides what happens. In an SBR, you do not. The process is what practitioners call debtor-in-possession: the restructuring practitioner acts as adviser, gatekeeper for transactions outside the ordinary course of business, and certifier of the plan, while the company continues to be run by its directors.

For an owner-operated business, that distinction is usually decisive. It means customers are not managed by a stranger, staff are not told that an administrator has been appointed, and the supplier relationships you have spent years building remain with the person who built them.

Why this matters specifically for ATO debt

ATO debt has two features that make it well suited to restructuring.

• It is unsecured. The ATO does not hold security over your plant, your debtors or your premises. That puts it squarely inside the pool of debt an SBR plan can compromise. Secured lenders sit outside the plan; the ATO does not.
• It is usually the largest single claim. Which means the ATO is generally the vote that decides whether a plan passes. That is not a reason for pessimism — it is a reason to build the proposal around what the ATO is known to look for, which is set out further below.

The published outcomes bear this out. In ASIC’s review of the regime covering 1 July 2022 to 31 December 2024, completed plans paid just over $101 million in dividends to unsecured creditors, of which roughly $88 million — about 87 per cent — went to the ATO. Restructuring is not a way of avoiding the ATO. It is a way of paying it something sustainable rather than nothing at all.

Are you eligible?

Five conditions have to be satisfied. Four of them are matters of fact you can check today.

Condition	What it means in practice
Total liabilities of $1 million or less	Measured on the day the restructuring begins. Contingent liabilities are excluded from the count. This is the condition most often misjudged — check it rather than estimate it.
Insolvent, or likely to become insolvent	You do not have to wait until you cannot pay. “Likely to become insolvent” is enough, and acting early materially improves the outcome.
All tax lodgements up to date	Every BAS, income tax return and FBT return must be lodged. Note: lodged, not paid. Unlodged returns are the single most common reason a business is not yet eligible.
Employee entitlements due and payable are paid	Wages and superannuation that are currently due must be paid in full before a plan is proposed. Entitlements not yet due, such as long service leave, do not have to be.
No use of SBR or simplified liquidation in 7 years	Applies to the company, and to you as a director in relation to another company.
Past compliance history	The ATO has a strong focus on past compliance history when proposing an SBR, if you are only now bringing overdue lodgements up to date, the ATO will take a hard view of whether they should accept your SBR proposal due to bad compliance.

Getting your compliance on track is the first step

• Outstanding lodgements can usually be brought up to date quickly, and lodgement does not require payment. This is the fastest route from ineligible to eligible.
• Unpaid superannuation must be dealt with and paid in full first, and since Payday Super commenced on 1 July 2026 it accrues faster and costs more. Address it before it grows.
• Liabilities slightly over the $1 million threshold sometimes come back under it once intercompany and director loan positions are properly characterised. That is a question to work through, not to guess at.
• Do not delay while you tidy up if the ATO has already issued a director penalty notice — the 21 days in that notice runs regardless.

The SBR process and time frames

SBR is deliberately fast. Once you appoint the SBR practitioner, the clock is not generous.

Stage	Time allowed	What happens
Appointment	Day 0	The restructuring practitioner is appointed. The moratorium starts immediately and creditors are notified.
Proposal period	20 business days	The plan is prepared, the company’s affairs are documented and the practitioner certifies the proposal. Extendable by up to 10 business days.
Creditor vote	15 business days	Creditors vote in writing. No meeting is held. A majority in value of those who respond carries the plan; related party creditors cannot vote.
Plan administration	Up to 3 years	Payments are made under the plan. On completion, the balance of the compromised debt is extinguished.

Because the formal process is short, almost all of the work that determines the outcome happens before appointment: getting lodgements in, understanding the true liability position, and building a cash flow forecast that will survive the ATO’s scrutiny.

What protection you get during the process

• A moratorium on enforcement. Unsecured creditors cannot start or continue proceedings against the company, and secured creditors are restrained from enforcing security except in limited circumstances.
• Protection from ipso facto clauses. Contract counterparties cannot terminate or vary a contract merely because the company is under restructuring. Leases and key supply agreements survive.
• Relief from insolvent trading. Directors are not liable under section 588G for debts incurred in the ordinary course of business during the restructuring.
• A stay on personal guarantees. Under section 453W, a creditor cannot enforce a guarantee of the company’s liability against a director, or their spouse or relative, while the company is under restructuring, without leave of the court.

Read that last point carefully, because it is the one most often misunderstood. It is a stay during the restructuring, not a release. A plan compromises the company’s debt; it does not discharge your personal guarantee of that debt. Guarantee exposure needs to be negotiated with the guaranteed creditor separately, and the plan should be built with that in mind.

Restructuring and director penalty notices: timing is everything

This is where an SBR either solves your personal exposure or does nothing for it, and the difference comes down to dates.

• Non-lockdown notice. Appointing a restructuring practitioner within the 21 days remits the director penalty. The relevant amounts must have been reported on time — broadly, within three months of the due day for PAYG withholding and GST. This is one of the four statutory remission options, and it is the only one that also lets you keep the business.
• Lockdown notice. Appointing a practitioner does not remit the penalty. Under a lockdown notice, only payment of the underlying company liability removes it.

The second point deserves emphasis because it produces a nasty outcome that catches directors out. Where the penalty has locked down, the company’s liability and your personal penalty are linked liabilities: a payment towards one discharges the other to the extent of that payment. A plan that pays, say, 35 cents in the dollar therefore discharges your personal penalty by 35 cents in the dollar. The remaining 65 cents does not disappear when the plan completes — the company’s debt is extinguished, but your personal liability for the balance is not.

So an SBR can rescue the business and still leave you personally exposed, if the underlying amounts were never reported on time. That is not an argument against restructuring. It is an argument for getting the analysis done properly before you appoint, so that you know which of your exposures the plan will actually resolve and which need a separate strategy.

What the ATO looks for before it votes yes

The ATO publishes its approach, and it is more predictable than most owners expect. It will generally support a plan that returns more to creditors within a reasonable period than a winding up would, where there is no wider public interest concern. What moves a proposal into that category:

• Every lodgement in — BAS, income tax returns, and superannuation reporting. This is close to a precondition rather than a preference.
• A credible comparison against liquidation. The plan has to demonstrably beat the alternative, with a supportable estimate of what a winding up would return.
• Cash flow forecasts showing the business can meet its ongoing tax and superannuation obligations in full and on time, from day one of the plan.
• Evidence of changed behaviour: lodgement backlogs cleared, instalments increased where possible, director drawings brought back to a realistic level.
• Director loan accounts addressed. An unpaid director loan sitting in the balance sheet while creditors are asked to take a haircut is a reliable way to lose the ATO’s vote.
• Documentation supplied promptly — the ATO expects three years of financials, asset details, the liquidation comparison and cash flow assumptions, generally within five business days of the practitioner’s request.

What loses the vote is equally predictable: a long history of late lodgement and minimal payment, forecasts that do not support future compliance, or a proposal that would leave the business with a cost advantage over competitors who paid their tax on time.

When SBR is the wrong answer

It is not the right tool for every business, and proposing it where it does not fit wastes money and time you do not have. It’s important to talk to Business Tax Debt Help first and rely on our qualified advice.

• The company owes you money. If you injected money into the company, related parties cannot vote or participate in an SBR; this is where a voluntary administration works better.
• When you cannot pay superannuation in full. An SBR requires all superannuation to be paid in full; if it is not, a voluntary administration will provide a more flexible strategy.
• Liabilities are well over $1 million. Voluntary administration and a deed of company arrangement cover similar ground without the threshold, at higher cost and with loss of control.
• The debt is mostly secured. A plan compromises unsecured claims. If your problem is a secured lender, this is not the solution.
• You cannot fund ongoing compliance. The plan requires you to meet all new tax and superannuation obligations in full and on time, from the start. A business that cannot do that will fail the plan and end up in liquidation anyway, having spent the fees.
• You are a sole trader or partnership. Part 5.3B applies to companies. Unincorporated businesses need a different route.

Frequently asked questions

Want the right advice from a qualified team that acts for you? Speak with our team about how an SBR can be used to address your tax debt issues.

• We advise business owners and directors on ATO tax debt, director liability and restructuring — including whether small business restructuring is the right answer, and what has to happen before you appoint.
• Bring us your integrated client account statement, your lodgement position and your last two years of financials. That is enough for us to tell you whether you are eligible, what a plan would realistically need to offer, and whether the ATO is likely to support it.
• If a director penalty notice has already been issued, call before you do anything else — the 21 days is running and it changes the order of operations.