Quick Summary
An SBR plan can be changed, extended, or terminated in certain circumstances. However, specific legal requirements apply to each. The outcome can also affect your business and creditors, so understanding the process is important.
On this page
- Introduction
- Changes
- Extensions
- Terminations
- What Happens to Creditors?
- Another SBR Plan After Termination
- If SBR Plan Is Not Sustainable
- Next Steps
- FAQs
Introduction
An SBR plan can give a struggling business some much-needed breathing room. But what if sales drop, costs rise, or the agreed payments become harder to manage? It’s worth knowing what can happen before a small problem turns into a bigger one.
This guide explains when an SBR plan can be changed, extended, or terminated, and what each outcome means for the business.
Changes
Yes, but only through the process allowed under Australian insolvency law. Once an SBR plan has been made, the company cannot simply change its terms by agreement with individual creditors. Under Regulation 5.3B.61, a restructuring plan can only be varied by a Court order.
The Court can make an order varying the restructuring plan.
An application can be made by:
- the company
- an affected creditor
- the restructuring practitioner
The Court can also vary a plan on its own initiative.
If your business can no longer meet the plan’s terms, you can speak to the restructuring practitioner before missing payments.
Extensions
Yes. A restructuring practitioner can extend the proposal period by up to 10 business days at the company’s request.
Here’s what you need to know:
- The proposal period generally lasts 20 business days.
- The practitioner can grant this extension once only.
- The company can also apply to the Court for an extension.
- This extension gives the company more time to propose an SBR plan. It does not extend a plan that has already been accepted.
- Once accepted, an SBR plan cannot provide for payments on admissible claims beyond three years from the acceptance date.
Terminations
Yes. An SBR plan can end because the company completes it or because a specific event triggers termination.
When can a SBR Plan be Terminated?
Under Australian law, termination can occur when:
- The company fulfils its obligations and all admissible debts and claims are dealt with.
- The Court orders the plan to be terminated.
- An event specified in the plan does not occur within the required timeframe.
- A person bound by the plan breaches it and the breach is not fixed within 30 business days.
- A voluntary administrator, liquidator, or provisional liquidator is appointed.
What Happens When a SBR Plan Is Terminated?
It depends on why the plan ended. Completing the plan has a very different outcome from having it terminated because of a breach, court order, or insolvency reasons.
If the plan is successfully completed:
- The company’s obligations under the plan have been fulfilled.
- All admissible debts and claims have been dealt with according to the plan.
- The company is released from those admissible debts and claims.
- Any company property not required to be distributed under the plan remains with the company.
If the plan terminates early:
- Any admissible debt or claim not dealt with under the plan becomes due and payable on the next business day.
- Creditors may regain their ability to pursue those outstanding debts, subject to applicable law.
- The company may need to consider other insolvency or restructuring options.
What Happens to Creditors
Creditors’ rights depend on whether the plan is operating, varied, successfully completed, or terminated early.
While an SBR plan remains in force, creditors bound by it generally cannot pursue covered admissible debts outside the plan without the Court’s permission.
- Creditors receive payments according to the terms of the restructuring plan.
- All admissible debts and claims rank equally under the plan.
- If the plan is successfully completed, the company is released from the relevant admissible debts and claims.
- If the plan terminates early, unpaid admissible debts and claims become due and payable on the next business day.
Secured creditors can have different rights depending on their security and the circumstances.
Another SBR Plan After Termination
Generally, no. A company may be prevented from entering another SBR if statutory restrictions apply.
Before considering another SBR, check:
- Whether the company still meets the SBR eligibility criteria.
- Whether it has previously undergone restructuring or simplified liquidation within the relevant restriction period.
- Whether restrictions apply because its directors were involved with another company that underwent restructuring or simplified liquidation.
- Whether another formal insolvency option may be more appropriate.
A previous SBR does not automatically give the company another opportunity to restructure. Eligibility must be assessed under the Corporations Act 2001 and applicable regulations.
If SBR Plan Is Not Sustainable
Act early if your business is struggling to meet its SBR commitments. Delaying action can limit your options and lead to further consequences. This includes:
- Reviewing cash flow: Identify why payments are becoming difficult.
- Speaking to your restructuring practitioner: Raise the issue before missing payments.
- Checking if the plan can be varied: Accepted plans can only be varied through the required legal process.
- Understanding termination: Unpaid admissible debts may become due and payable if the plan ends early.
- Considering other options: Another formal insolvency process may be appropriate if the business cannot continue under the plan.
Next Steps
If your SBR plan is becoming hard to manage, don’t wait for a missed payment to force the issue. You can:
- Work out exactly which part of the plan is at risk — a specific payment, a cash flow gap, or something else
- Speak to your restructuring practitioner as soon as the problem becomes clear, not after a payment is missed
- Ask whether a Court-ordered variation could realistically apply to your situation
- Understand what happens if the plan terminates, so you’re not caught off guard
- Get advice early if another restructuring or insolvency option might be more appropriate
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation consultation to help you understand your position and options. Get in touch today.
FAQs
Can a company continue trading during an SBR plan?
Yes. The company can generally continue trading while the SBR plan is in place, provided it meets its obligations and follows the plan.
Can a company take on new debt during an SBR plan?
Yes, but new debt is generally separate from the debts covered by the plan. The company must still be able to meet these new obligations as they fall due.
Can creditors challenge an SBR plan?
Yes. Creditors have certain rights under the SBR framework, including the ability to seek Court orders in appropriate circumstances.
Are new debts covered by an SBR plan?
No. New debts incurred after the plan begins are generally not part of the admissible debts covered by the plan.
Are secured debts treated differently under SBR?
Yes. Secured creditors can have different rights depending on the security they hold and the circumstances of the restructuring.
Can creditors contact a company during an SBR plan?
Yes. However, creditors bound by the plan are generally restricted from pursuing covered admissible debts outside the plan.
Can an unpaid new expense cause problems during SBR?
Yes. An unpaid expense may create additional financial pressure because it may not be covered by the restructuring plan.
Can employees be affected by an SBR plan?
Yes. Employees may be affected if the company struggles to meet wages or other employment obligations, although employee entitlements can have specific treatment under insolvency law.
Does SBR automatically end existing supplier contracts?
No. Entering SBR does not automatically terminate every existing contract. The effect depends on the contract and the circumstances.
Can a company sell assets during an SBR plan?
Yes, generally, but significant asset sales should be considered carefully. The company should check the plan and obtain appropriate advice before selling important business assets.
Can directors continue managing the company during SBR?
Yes. Directors generally remain in control of the company during SBR, while the restructuring practitioner oversees the restructuring process and performs their statutory role.
Can an SBR plan last longer than three years?
No. An accepted plan cannot provide payments on an admissible claim beyond three years from the date the plan is accepted.
