If creditors reject a Small Business Restructuring (SBR) plan, businesses must explore other solutions. This may include negotiating with creditors, securing additional funding, or considering other restructuring or insolvency options.
On This Page
Introduction
No business owner wants to hear that creditors have rejected their restructuring proposal. This can create uncertainty, but it doesn’t automatically mean your business must close or enter liquidation.
Understanding your options early can make a significant difference to the outcome. If creditors reject a Small Business Restructuring (SBR) plan, the business must then consider other ways to deal with its financial difficulties. This can be through negotiation, another formal insolvency process, or, in some cases, continuing to trade.
A rejected restructuring plan means:
- The restructuring plan does not become legally binding on creditors
- Existing debts remain payable under their original terms
- The temporary protections available during the restructuring process generally come to an end, terminating the moratorium protecting the company
- Creditors may resume or start recovery action where they are legally entitled to do so
- Directors should review whether the business can continue trading while meeting its legal obligations to avoid personal liability for insolvent trading
- The Small Business Restructuring Practitioner’s role automatically terminates, and the company’s formal status change is updated on the ASIC register, which can lead to immediate reviews by credit managers or suppliers
- If you have a 21-day Standard Director Penalty Notice (DPN) and appointed the restructuring practitioner within that original 21-day window, that appointment already remitted the penalty at the time it was made — a later rejection of the plan doesn’t undo that remission or reopen the 21-day clock for that notice. However, if the practitioner was appointed after the 21-day window had already expired, no remission occurred, and the director remains personally liable regardless of the plan’s outcome
- If you have an expired Lockdown DPN, the ATO can move against your personal assets immediately through garnishee notices or property charges
- The company was “under restructuring” once the practitioner was appointed, and this alone — regardless of whether a plan was proposed or how it was decided — means you and your company cannot access the SBR pathway or Simplified Liquidation again for another 7 years
Alternatives
A rejected SBR plan is not necessarily the end of the road. Several options may still be available depending on the circumstances.
1. Negotiate directly with creditors
Some creditors may be willing to reach informal repayment arrangements outside the SBR process. This can provide extra time to manage cash flow without entering another formal insolvency procedure. However, because major creditors (like the ATO) have just formally rejected a structured, vetted proposal, informal options can be challenging to secure post-SBR.
2. Explore refinancing or additional funding
If the business has strong future prospects, refinancing, new investment, or asset sales may help reduce financial pressure and improve liquidity.
3. Consider another insolvency solution
Where recovery is no longer realistic, other formal options may be more appropriate, including:
- Voluntary administration
- Liquidation
- Simplified liquidation (where eligible)
Common Mistakes
Creditors often reject plans because they do not believe the proposal is achievable or provides enough value.
Some common reasons include:
- Offering repayments that are too low without adequate justification.
- Providing unrealistic financial forecasts or overly optimistic assumptions.
- Failing to explain how future cash flow will support the proposed repayments.
- Incomplete or inaccurate financial records.
- Poor communication with creditors before the voting process.
- Waiting too long to enter restructuring, leaving the business with limited cash flow or mounting debts.
- Not addressing the issues that caused the financial distress in the first place.
- A history of poor tax compliance, uncommercial dividend estimates compared to a liquidation outcome, or unaddressed director loan accounts (Division 7A issues) that make major creditors like the ATO lose confidence in the proposal.
Improve the Chances of Approval
Creditors are more likely to support a restructuring plan when they believe it offers a better outcome than alternative options.
Businesses can strengthen their proposal by:
- Preparing realistic cash flow forecasts supported by reliable financial information.
- Offering repayment terms the business can genuinely afford.
- Lodging all required tax returns and ensuring eligibility requirements have been met.
- Providing clear explanations of what caused the financial difficulties and how they will be addressed.
- Demonstrating that the business has a realistic opportunity to return to profitability.
Next Steps
If your Small Business Restructuring (SBR) plan has been rejected, it’s important not to delay your next decision, get in touch with us today. Understanding why the plan was unsuccessful and exploring the available options early can help improve your outcomes.
Practical next steps include:
- Reviewing why creditors rejected the restructuring plan
- Assessing whether the business can continue trading
- Speaking with your Small Business Restructuring Practitioner about the most appropriate options
- Exploring whether informal negotiations with creditors could help resolve debts.
- Considering other formal insolvency options, such as voluntary administration or liquidation
Seeking independent legal and financial advice as soon as possible to understand your obligations and make informed business decisions.
At Halo Advisory, we work with business owners, and directors facing debt issues. Financial expert Greg Bartels offers a no-obligation consultation to help you understand your position, risks, and options for resolving debts. Get in touch today.
FAQs
Can creditors ask questions before voting on a Small Business Restructuring plan?
Yes. Creditors can request further information through the Small Business Restructuring Practitioner before deciding how to vote. Access to accurate information helps creditors assess whether the proposal is fair and achievable.
What voting threshold is required for a Small Business Restructuring plan to be approved?
A restructuring plan is approved if creditors who cast a vote, representing more than 50% of the total value of admissible debts held by those voting creditors, vote in favour of the plan. If that threshold of in-favour votes by value isn’t reached, the plan is rejected.
Does every creditor get to vote on a Small Business Restructuring plan?
No. Only creditors with admissible debts that are eligible to vote under the Corporations Act and the restructuring process can participate in the vote.
Can secured creditors reject a Small Business Restructuring plan?
Yes. Secured creditors can vote on any unsecured portion of their debt if they are entitled to do so. Their security rights are generally not affected unless they agree otherwise.
How long do creditors have to vote on a Small Business Restructuring plan?
Creditors generally have 15 business days from the date the restructuring plan is provided to cast their vote. Votes received after the deadline are usually not counted.
Can related-party creditors vote on a Small Business Restructuring plan?
No. Related-party creditors are generally excluded from voting to ensure the outcome reflects the views of independent creditors.
