Quick summary
The ATO looks for a realistic and well-supported Small Business Restructuring plan that gives creditors a fair return. It considers factors such as the business’s financial position, tax compliance, proposed repayments, and whether the plan provides a credible path forward.
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Introduction
An SBR plan can help a financially stressed business deal with its debts while continuing to trade.
However, the proposal needs more than optimistic figures and a promise to repay creditors. It must show how the business will become financially stable again.
This article explains what the ATO looks for, what can weaken your plan, and how to prepare a stronger proposal.
What ATO Looks For
The ATO does not simply look at how much tax your company owes. It wants to understand whether the proposed arrangement is realistic and properly supported.
1. Meets core eligibility
The company must meet the eligibility requirements for SBR. This includes staying within the relevant $1 million limit for admissible debts, subject to the rules that apply to the company.
The debt position should be reviewed carefully before proposing a plan.
2. Better return than liquidation
Your proposal should give creditors a better outcome than they would likely receive from liquidation.
Your restructuring practitioner should be able to explain the comparison clearly. The figures should be based on reasonable assumptions about the company’s assets, debts, and likely liquidation outcome.
3. Shows the business can survive
Your forecasts need to show that the business can keep trading and meet its obligations.
They should account for:
- Proposed SBR payments.
- Wages and employee entitlements.
- Future tax and super obligations.
- Normal operating expenses.
- Seasonal changes in revenue.
- Existing debts and payment commitments.
- The plan can run for up to three years, so the forecast should cover the proposed contribution period.
4. Up-to-date tax compliance
Required tax lodgements need to be up to date before the restructuring plan is proposed.
This can include:
- Tax returns.
- Business Activity Statements (BAS).
- Instalment Activity Statements (IAS).
- Other required ATO reporting.
- Getting your lodgements current also gives the ATO a clearer picture of your actual tax position.
5. Honest explanation and director history
The proposal should explain how the financial problems developed.
For example, debt may have increased because of:
- Falling sales.
- Rising operating costs.
- Loss of a major customer.
- Unexpected expenses.
- Poor cash flow management.
- Tax debts accumulating over time.
The ATO may also consider the company’s history and director conduct. Be prepared to explain significant director drawings, loans, or related-party transactions.
6. Fair treatment of creditors
The plan should deal with creditors transparently.
Related-party debts deserve particular attention. Director or associated-party claims should be properly documented and clearly identified.
The proposal should not appear designed to give insiders an unfair advantage over other creditors.
7. A credible turnaround
The ATO needs to see what will change after the restructuring begins.
This could include:
- Reducing unnecessary expenses.
- Renegotiating supplier arrangements.
- Increasing prices where appropriate.
- Improving debtor collections.
- Ending loss-making activities.
- Changing staffing or operating arrangements.
The important point is to connect these changes to the business’s financial forecasts.
Common Issues
A proposal can lose credibility when the numbers, records, or explanations do not add up leading to your SBR plan getting rejected. Let’s look at some of the common problems that can raise issues regarding restructuring plan acceptance:
- Unrealistic forecasts: Revenue suddenly increases without supporting evidence.
- Unexplained savings: Costs drop sharply without explaining how.
- Outstanding lodgments: Required tax returns or BAS remain overdue.
- Unpaid employee entitlements: Due and payable entitlements have not been addressed.
- Weak liquidation comparison: The proposed return does not clearly beat liquidation.
- Unclear related-party debts: Director loans or related-party balances lack proper records.
- No clear turnaround: The proposal does not explain how future debt will be avoided.
- Missing current liabilities: Forecasts fail to account for new tax and super obligations.
- Poor cash flow visibility: The business cannot show how it will fund ongoing operations and plan payments.
Most of these issues come down to gaps that are easy to miss until the ATO points them out.
How to Prepare an SBR Plan
A stronger proposal starts with accurate information and realistic expectations.
1. Bring lodgements up to date
Complete outstanding tax returns, BAS, and other required lodgements. This gives your practitioner and creditors a clearer view of the company’s position.
2. Compare the likely outcomes
Show what creditors could receive under the proposed plan. Then compare this with the likely liquidation outcome. The comparison should be clear and supported by evidence.
3. Use realistic forecasts
Base your projections on actual trading results wherever possible. Explain any major changes in revenue, expenses, margins, or cash flow.
4. Make repayments manageable
Your proposed contributions need to fit the company’s expected cash flow. Leave enough cash to meet ongoing operating costs, new tax and employee obligations.
5. Show what will change
Do not simply say the business will become profitable. Explain how that will happen and what actions have already been taken.
6. Address concerns early
Work closely with your restructuring practitioner before the creditor vote. If the ATO or another creditor is likely to raise an issue, deal with it before the proposal reaches creditors.
7. Give the ATO what it asks for, on time
Where the ATO is a major creditor, it will only review a draft plan if the supporting information is provided at least five full business days before the plan is required to be issued to creditors. It typically expects:
- Three years of profit and loss accounts and balance sheets
- Asset details as at the date of appointment
- Transaction reports for director, shareholder or related-entity loans
- Cash flow forecasts with key assumptions clearly stated
- An estimated liquidation dividend for comparison
The ATO will not consider a plan until everything it has requested has been provided, so treat this list as a starting checklist rather than something to assemble after the fact.
Next Steps
Getting the ATO’s support starts with treating its expectations as a checklist, not an afterthought. Before you propose a plan:
- Confirm all required tax returns, BAS, and other lodgements are current
- Prepare the specific documents the ATO typically requests — three years of financials, asset details, related-party transaction reports, and cash flow forecasts with clear assumptions
- Work out a credible liquidation comparison, so the ATO can see the proposed return genuinely beats the alternative
- Identify and document any director loans or related-party balances before they’re questioned
- Build a clear explanation of what’s changing in the business, not just a promise that things will improve
- Get this information to your restructuring practitioner well ahead of the five-business-day deadline for ATO review
At Halo Advisory, we work with business owners and directors facing financial distress. Financial expert Greg Bartels offers a no-obligation consultation to assess your position, explain your options, and discuss your next steps. Get in touch today.
FAQs
Can I continue trading while an SBR plan is being considered?
Yes. A key feature of SBR is that the company can generally continue operating while the restructuring process takes place.
What happens if the business cannot make the agreed restructuring payments?
Failing to meet the plan’s terms can have serious consequences, including the plan ending and creditors pursuing other recovery options.
Can I propose another restructuring plan if the first one fails?
Not immediately in every case. There are restrictions on when a company can use the SBR process again, so professional advice is important before taking further action.
Can the ATO reject a plan even if the business is profitable?
Yes. Profitability alone is not enough. The proposal must also meet the legal requirements and provide a reasonable outcome for creditors.
Can director loans affect an SBR proposal?
They can. Large or unclear related-party balances may raise questions about whether creditors are being treated fairly, so they should be properly documented.
Can unpaid superannuation affect SBR eligibility?
Yes. Employee entitlements that are due and payable generally need to be paid before a restructuring plan can be proposed.
Can creditors challenge the amount offered under the plan?
Yes. Creditors can vote against the proposal if they do not consider it acceptable. The restructuring practitioner also assesses whether the plan meets the applicable requirements.
What happens to tax obligations that arise after the restructuring plan?
New tax liabilities are generally separate from debts dealt with under the plan. The business must continue meeting its ongoing tax obligations while trading.
