When a business enters SBR, creditors become part of a formal process to deal with the company’s debts. While some recovery action is temporarily restricted, creditors retain important rights, including voting on the restructuring plan and receiving payments if it’s approved.
On This Page
- Introduction
- Recovery Action Continuation
- Creditor Payments
- Plan Rejection
- Creditor Rights
- Secured Creditors
- Employee Entitlements & Other Priority Creditors
- SBR Benefits For Creditors
- Next Steps
- FAQs
Introduction
When a business enters Small Business Restructuring (SBR), business owners aren’t the only ones affected. Creditors also need to understand what happens next, from debt recovery restrictions to voting on the proposed restructuring plan.
When a company enters Small Business Restructuring (SBR), creditors are formally notified that the business has begun a restructuring process under Australian insolvency law.
Unlike liquidation, the company continues trading while the directors remain in control of day-to-day operations and work with a SBR Practitioner to prepare a restructuring plan.
During this process:
- Creditors are notified that the company has entered SBR.
- The business continues operating as usual.
- A restructuring plan is prepared and presented to creditors.
- Creditors vote to accept or reject the proposed plan.
If approved, creditors receive payments under the plan instead of pursuing separate recovery action.
Note: The restructuring process only affects and binds “affected creditors”—meaning those whose debts existed before the start date of the restructuring period. To be eligible for SBR, the total of these pre-appointment liabilities must be less than $1 million. Any new debts incurred by the company during the restructuring process for ordinary business trading must be paid in full and are not discounted by the plan.
Recovery Action Continuation
Generally, no. Once a company enters Small Business Restructuring, both unsecured and most secured creditors are generally prevented from starting or continuing debt recovery action against the company.
This gives the business time to prepare a restructuring plan.
Important points to remember
- Many unsecured creditors cannot commence or continue enforcement action without the Court’s permission.
- Most secured creditors are also restricted from enforcing their security during the restructuring period. The main exception is a secured creditor with security over the whole, or substantially the whole, of the company’s assets — they have a limited 13-business-day decision period to enforce their security or appoint a receiver. If they don’t act within that window, they become bound by the moratorium like other creditors.
- Creditors can continue communicating with the Small Business Restructuring Practitioner and request information about the restructuring process.
- Once the restructuring process ends, creditors’ rights will depend on whether the restructuring plan has been accepted or rejected.
Creditor Payments
Instead of each creditor negotiating separately with the company, eligible creditors receive payment under a single restructuring plan.
The plan sets out:
- how much money will be available for creditors
- where those funds will come from
- when payments will be made
- which creditors are entitled to participate.
If creditors approve the plan, the agreed funds are paid to the restructuring practitioner, who distributes the money according to the approved proposal.
In many cases, creditors receive:
- a lump sum payment, or
- payments made over an agreed period.
Creditors usually receive only part of what they are owed, as the available funds are shared under the plan. However, the return is often better than liquidation, where creditors may receive little or nothing.
Plan Rejection
If creditors reject the restructuring plan, the company cannot proceed with it and must consider other options to address its debts. The directors must then consider other ways to deal with the company’s financial position.
This may include:
- Negotiating directly with creditors to reach alternative payment arrangements.
- Exploring another turnaround strategy if the business is still viable.
- Appointing a voluntary administrator.
- Entering liquidation if the company can no longer continue trading.
Creditor Rights
Although the company receives temporary protection during SBR, creditors continue to have important rights throughout the process.
These include the right to:
- receive notice that the company has entered Small Business Restructuring
- receive information about the proposed restructuring plan
- review the restructuring proposal before voting
- vote on whether to accept or reject the plan (if they are eligible creditors)
- receive distributions under an approved plan if they are entitled to participate
- ask the restructuring practitioner questions about the proposal and administration of the plan
A restructuring plan is generally approved if more than 50% of eligible creditors, calculated by the value of their debt, vote in favour — this is different from voluntary administration, which requires a majority by both number and value. Votes from related-party creditors are generally excluded from this calculation, to prevent the outcome being decided by parties connected to the company rather than independent creditors.
These rights help ensure creditors can make an informed decision based on the company’s financial position and the likely return available under the proposed plan.
Secured Creditors
Secured creditors are generally in a different position from unsecured creditors, because they hold security over specific company assets, such as property, equipment or vehicles. However, this doesn’t mean they sit outside the SBR moratorium by default.
In many cases, secured creditors:
- remain subject to the same restriction on enforcing their security during the restructuring period as other creditors
- can choose whether to participate in the restructuring plan for any unsecured portion of their debt
The main exception applies to a secured creditor holding security over the whole, or substantially the whole, of the company’s assets. This creditor has a limited 13-business-day decision period, starting from when they receive notice of the restructuring, to enforce their security or appoint a receiver. If they don’t act within that window, they become bound by the moratorium like other creditors, and must wait for the restructuring process to end before enforcing their security.
The treatment of secured creditors varies depending on the terms of their security arrangements and the business circumstances. For this reason, their position is often different from that of ordinary trade creditors.
Employee Entitlements & Other Priority Creditors
Employee entitlements receive special protection under Australian insolvency law.
To be eligible for Small Business Restructuring, a company must ensure that:
- all employee entitlements that are due and payable have been paid before the restructuring plan is proposed
- all required employee superannuation obligations have been met.
This means employees should not be left waiting for overdue wages or other outstanding entitlements while creditors vote on the plan.
Note: Other creditors do not automatically receive priority simply because they are owed money. Instead, payments are generally made according to the terms of the approved restructuring plan and the requirements of the legislation.
Tax Compliance Requirements
In addition to employee payments, the company must have all of its tax lodgements completely up to date (including all outstanding BAS, income tax returns, and required declarations). This must be done before a restructuring plan can be formally proposed to creditors.
SBR Benefits For Creditors
While creditors may not recover every dollar they are owed, Small Business Restructuring can still provide many advantages.
These include:
- a better financial return than would be available if the company were wound up
- faster resolution of outstanding debts through a structured process
- greater transparency about the company’s financial position
- equal treatment among participating unsecured creditors
- the opportunity to support a viable business that can continue trading.
For many creditors, receiving an agreed dividend through a successful restructuring plan can be preferable to lengthy recovery action with little prospect of a better outcome.
Next Steps
If your business is entering Small Business Restructuring (SBR), or you’re a creditor, it’s important to understand how the process affects your options. Acting early can help businesses improve their chances of restructuring and help creditors get better returns.
Practical next steps include:
- Understand how Small Business Restructuring works and what it means for you.
- Review the company’s financial position and included debts.
- Respond promptly to requests from the restructuring practitioner.
- Review the proposed restructuring plan before voting.
- Seek independent advice if you’re unsure about the plan.
Speaking with a Small Business Restructuring Practitioner as early as possible if your business is experiencing financial difficulty and may be eligible for SBR.
At Halo Advisory, we work with business owners, and directors facing ATO debt issues. Financial expert Greg Bartels offers a no-obligation consultation to help you understand your position, assess potential risks, and identify practical options. Get in touch today.
FAQs
Do all creditors have to accept the Small Business Restructuring plan?
No. Creditors vote on the proposed plan, and it only takes effect if more than 50% of eligible creditors, by value of debt, vote in favour — votes from related-party creditors are generally excluded from this calculation. Once approved, the plan becomes binding on the creditors who are covered by it.
Can creditors negotiate the terms of a Small Business Restructuring plan?
Creditors cannot amend the proposed plan themselves. However, they can raise concerns or ask questions before voting, and the company may choose to revise its proposal before it is put to a vote.
Will creditors receive the full amount they are owed?
Not usually. Most restructuring plans provide creditors with a percentage of the debt owed, although this may still result in a better return than if the company entered liquidation.
Can a creditor vote if the amount they are owed is disputed?
Generally, only creditors with admissible debts can vote. If there is a dispute about a debt, the Small Business Restructuring Practitioner will determine whether the creditor is entitled to vote for the purposes of the restructuring plan.
What happens if a creditor misses the voting deadline?
If a creditor does not submit their vote by the deadline, their vote generally won’t be counted. The outcome will be determined based on the votes received from eligible creditors within the required timeframe.
Can creditors contact the Small Business Restructuring Practitioner directly?
Yes. Creditors can contact the practitioner to ask questions about the restructuring process, clarify information in the proposal, or understand how the plan may affect them.
