SBR includes most unsecured debts that existed before the process began, such as ATO debt, supplier invoices, unsecured loans, lease arrears and related-party loans. However, employee entitlements, SGC liabilities, post-appointment debts and fully secured debts are generally treated differently and may not participate in the restructuring plan in the same way.
On This Page
- Introduction
- Admissable Debts & Claims
- Debts Included
- Debts Not Included
- Creditors Repayment Rates
- Common Misconceptions
- What Directors Should Review Before Proposing a Plan
- Final Take
- FAQs
Introduction
Businesses facing financial pressure and considering SBR often have a mix of liabilities, including ATO debt, supplier invoices, lease arrears, loans, employee obligations and related-party debts.
Understanding which debts can be dealt with through an SBR plan is important because not every liability is treated the same way. Some debts can participate in the restructuring proposal, while others are treated differently under the framework.
This guide explains the types of debts commonly included in a Small Business Restructuring plan, which obligations may be treated differently, and what directors should understand before proposing a plan to creditors.
Admissable Debts & Claims
The starting point for understanding a Small Business Restructuring plan is understanding the concept of admissible debts and claims.
In simple terms, admissible debts and claims are the creditor claims that participate in the restructuring plan and are considered when creditors vote on the proposal.
Small Business Restructuring is designed to deal with most unsecured debts and liabilities that existed before the company entered the restructuring process.
This includes:
- ATO debt, including GST, PAYG withholding and income tax liabilities,
- Trade creditor and supplier invoices,
- Unsecured business loans,
- Business credit card debt,
- Related-party loans from directors, shareholders or related entities, and
- The unsecured shortfall remaining after a secured asset has been realised.
However, it my deal with other debts differently. This may include:
- Employee entitlements,
- Superannuation Guarantee Charges (SGC),
- Debts that have been incurred after the SBR start date, and
- Fully secured debts.
Employee entitlements, for example, must be paid before a restructuring plan can be proposed. Similarly, debts incurred after the restructuring process begins are generally not included in the plan and must continue to be paid in the ordinary course of business.
Let’s look at this in more detail.
Debts Included
ATO Debt
ATO debt is one of the most common reasons companies explore Small Business Restructuring.
Many businesses enter the process with significant:
- Goods and Services Tax (GST) liabilities,
- Pay-As-You-Go (PAYG) withholding debt,
- Income tax debt,
- General interest charges, or
- Other tax-related obligations.
In many SBR proposals, the ATO is one of the largest creditors and may hold a significant voting position when creditors consider the restructuring plan.
However, directors should not confuse tax debt with tax lodgement obligations.
Tax debts may be included in the plan, but the company must generally have its tax lodgements up to date before a restructuring proposal can be presented to creditors.
In simple terms, the issue is not whether the tax debt has been paid. The issue is whether the company’s reporting obligations have been met.
Trade Creditors and Supplier Debt
Trade creditors and supplier debt are among the most common liabilities included in a Small Business Restructuring plan.
These debts typically arise from the ordinary day-to-day operation of a business and may include:
- Unpaid supplier invoices,
- Trade accounts,
- Professional service fees,
- Contractor invoices, and
- Other unsecured business expenses.
For example, a company may owe multiple suppliers for stock, materials or services provided before the restructuring process began. Those supplier claims can generally participate in the restructuring plan as admissible debts.
For many businesses, trade creditors make up a significant portion of the creditor pool that ultimately votes on whether the restructuring proposal should be accepted.
Related-Party Loans and Director Loans
Many small businesses receive financial support from directors, shareholders or related entities.
These arrangements may include:
- Director loans,
- Shareholder loans,
- Advances from related companies, or
- Other forms of related-party funding.
In many cases, these debts can form part of the creditor pool and participate in the restructuring plan.
However, related-party claims often receive closer scrutiny than ordinary trade debts. Creditors will generally expect the company’s financial records to clearly identify:
- Who provided the funds,
- The amount outstanding, and
- The basis on which the debt arose.
Transparency is important because creditors need confidence that all claims are being treated fairly and accurately.
Secured Creditor Shortfalls
Secured debts are treated differently from ordinary unsecured debts.
Where a creditor holds security over an asset, such as a vehicle, equipment or machinery, the secured creditor will generally look to that asset first to recover the amount owed.
However, sometimes the value of the secured asset is less than the debt it secures.
Here’s an example:
A company may owe $80,000 on equipment finance, but the equipment is only worth $50,000. In that situation, the secured creditor may recover the value of the equipment, leaving a remaining shortfall of $30,000.
That unsecured shortfall may be capable of participating in the restructuring plan as an admissible claim.
While the secured portion of the debt is generally dealt with through the security itself, the unsecured balance may be treated in the same way as other unsecured creditor claims.
Lease Arrears
Where rent remains unpaid before the company enters Small Business Restructuring, the landlord may have a claim against the company for commercial lease arrears.
Depending on the circumstances, those arrears may participate in the restructuring plan in the same way as other unsecured creditor claims.
For example, a retailer may owe several months of unpaid rent before entering SBR. The landlord’s claim for those arrears may form part of the creditor pool that votes on the restructuring proposal.
However, ongoing rent obligations that arise after the restructuring process begins are generally treated differently and must usually be paid in the ordinary course of business.
Debts Not Included
Employee Entitlements
Employee entitlements are treated differently from most other debts in a Small Business Restructuring.
Unlike trade creditors, supplier invoices or ATO debt, employee entitlements that are due and payable generally cannot simply be rolled into the restructuring plan.
Instead, these obligations typically need to be paid before a restructuring plan can be proposed.
Depending on the circumstances, employee entitlements may include:
- Outstanding wages,
- Annual leave,
- Long service leave,
- Redundancy entitlements, and
- Other employee-related obligations that have fallen due.
This requirement is one of the key eligibility conditions for SBR and is designed to protect employees before creditors are asked to vote on a restructuring proposal.
For more information, see: Small Business Restructuring Eligibility
Personal Guarantees
Small Business Restructuring deals with company debts. It does not automatically remove personal obligations that directors may have given to creditors.
This is particularly important where a director has signed a personal guarantee in support of:
- A business loan,
- Equipment finance,
- A commercial lease,
- A supplier account, or
- Another company obligation.
While the company debt itself may be addressed through the restructuring plan, the personal guarantee is a separate legal obligation.
As a result, directors should carefully review any guarantees they have provided and seek advice about their potential exposure.
Debts Incurred After Practitioner Appointment
Small Business Restructuring primarily deals with historical debts that existed before the company entered the process.
Debts incurred after the restructuring practitioner is appointed are generally not included in the restructuring plan.
These post-appointment liabilities may include:
- New supplier purchases,
- Ongoing rent obligations,
- Current employee wages,
- Utility expenses,
- Insurance premiums, and
- Other ordinary trading costs.
For example, if a company orders new stock after entering SBR, that new supplier debt would generally need to be paid in the normal course of business rather than through the restructuring plan.
This distinction is important because creditors and suppliers often want assurance that new obligations will continue to be met while the restructuring is underway.
In practical terms, SBR deals with historical financial problems, while the business remains responsible for meeting new obligations as they arise.
Creditors Repayment Rates
One of the key principles of Small Business Restructuring is that admissible debts and claims generally rank equally under the plan.
This means directors cannot usually choose to favour one unsecured creditor over another.
For example, if a restructuring plan proposes a return of 20 cents in the dollar, that return is generally applied proportionately across admissible creditor claims.
A company cannot typically offer one supplier 100 cents in the dollar, another supplier 50 cents in the dollar, and the ATO 20 cents in the dollar, simply because it prefers certain creditors.
This equal treatment principle helps ensure fairness and transparency throughout the restructuring process.
Common Misconceptions
Myth: “Only ATO debt can be included.”
Reality: ATO debt is commonly included in SBR plans, but it is far from the only debt that may participate.
Trade creditors, supplier invoices, unsecured loans, related-party loans and other admissible unsecured claims may also form part of the restructuring proposal.
Myth: “Employee entitlements can be rolled into the plan.”
Reality: Employee entitlements are treated differently.
Employee entitlements that are due and payable generally need to be paid before a restructuring plan can be proposed and are not treated in the same way as ordinary admissible creditor claims.
Myth: “Directors can choose which creditors get paid first.”
Reality: Admissible debts and claims generally rank equally under an SBR plan.
Directors cannot usually favour one unsecured creditor over another simply because they consider that creditor more important.
Myth: “Personal guarantees disappear under SBR.”
Reality: Small Business Restructuring deals with company debts, not personal obligations.
If a director has provided a personal guarantee, that guarantee may continue to exist even if the underlying company debt is dealt with through the restructuring plan.
What Directors Should Review Before Proposing a Plan
Before proposing a Small Business Restructuring plan, directors should have a clear understanding of the company’s liabilities and how those liabilities may be treated under the restructuring framework.
A practical checklist includes:
- ATO liabilities,
- Trade creditor balances,
- Supplier invoices,
- Lease arrears,
- Related-party loans,
- Employee entitlements,
- Secured debts,
- Potential secured creditor shortfalls, and
- Any personal guarantees provided by directors.
Creditors rely on the information provided when assessing whether to support the restructuring proposal, so incomplete or inaccurate records can create delays and undermine confidence in the plan.
Final Take
Small Business Restructuring is designed to deal with most unsecured debts and liabilities that existed before the company entered the restructuring process.
However, not all liabilities are treated in the same way. Certain liabilities have to be paid in the ordinary course of business, while others remain a separate consideration for directors.
Understanding how different debts are treated is an important part of assessing whether SBR is likely to be an appropriate solution for the company.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, consultation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
Can ATO debt be included in Small Business Restructuring?
Yes.
ATO debt is commonly included in Small Business Restructuring plans and is often one of the largest creditor claims participating in the proposal.
However, while tax debts may be included, tax lodgements generally need to be up to date before the restructuring plan can be presented to creditors.
Can supplier debt be included?
Yes.
Unpaid supplier invoices, trade accounts and other ordinary unsecured business debts can generally participate in the restructuring plan as admissible claims.
For many businesses, supplier debt forms a significant part of the creditor pool.
Can director loans be included?
In many cases, yes.
Loans from directors, shareholders and related entities may participate in the restructuring plan, provided they are properly recorded and constitute legitimate creditor claims.
These claims may receive closer scrutiny than ordinary trade debts, so transparency is important.
Can lease arrears be included?
Often, yes.
Where rent arrears arose before the company entered Small Business Restructuring, the landlord’s claim may participate in the restructuring plan as an unsecured creditor claim.
However, rent obligations that arise after the restructuring process begins generally need to be paid in the ordinary course of business.
Are employee entitlements included in the plan?
Generally, no.
Employee entitlements that are due and payable are treated differently from ordinary unsecured creditor claims and generally need to be paid before a restructuring plan can be proposed.
This is one of the key eligibility requirements for Small Business Restructuring.
What happens to secured creditors?
Secured creditors generally retain the benefit of their security.
To the extent a debt is fully secured, it will usually be dealt with outside the restructuring plan. However, if there is an unsecured shortfall after the secured asset is realised, that shortfall may participate in the plan as an admissible claim.
What are admissible debts and claims?
Admissible debts and claims are the creditor claims that participate in the restructuring plan and are considered when creditors vote on the proposal.
These claims are generally entitled to share in any distribution made under the approved restructuring arrangement.
Do all creditors receive the same repayment rate?
Generally, yes.
One of the key principles of Small Business Restructuring is that admissible debts and claims rank equally under the plan.
This means unsecured creditors are generally treated proportionately rather than receiving different repayment rates based on preference.
Are post-appointment debts included?
No.
Debts incurred after the restructuring practitioner is appointed are generally not included in the restructuring plan.
These obligations must usually be paid in the ordinary course of business as they arise.
Does SBR remove personal guarantees?
No.
Small Business Restructuring deals with company debts, not personal obligations.
If a director has provided a personal guarantee, that guarantee may continue to exist even if the underlying company debt is addressed through the restructuring plan.
Can creditors be paid different amounts?
Generally, no.
Admissible debts and claims typically rank equally under the restructuring plan, meaning unsecured creditors participate on a proportionate basis rather than receiving preferential treatment.
What debts cannot be included in an SBR plan?
The treatment of individual debts depends on the circumstances, but liabilities commonly treated differently include:
- Employee entitlements,
- Superannuation Guarantee Charge liabilities,
- Debts incurred after the restructuring process begins, and
- Fully secured debts to the extent they remain supported by security.
Directors should obtain advice if they are unsure how a particular liability will be treated under the restructuring framework.
