Quick Summary
SBR only applies to a company registered under the Corporations Act, including a corporate trustee of a trust. Sole traders, partnerships, and trusts without a corporate trustee can’t access it. Instead, individuals generally have options under the Bankruptcy Act — a Part IX debt agreement, Part X personal insolvency agreement, or informal negotiation.
On this page
- Introduction
- Why SBR Is Limited to Companies
- Business Structures and SBR Eligibility
- What Sole Traders Can Do
- What Partnerships Can Do
- Converting to a Company Structure
- Practical Considerations Before Restructuring
- FAQs
Introduction
Small Business Restructuring (SBR) is frequently described as a debt solution for “small businesses,” which leads some business owners to assume it applies regardless of how their business is legally structured.
This is not the case.
SBR is a mechanism created by Part 5.3B of the Corporations Act 2001 (Cth), and it reflects a genuine legal limitation rather than a drafting convention. Only an entity that meets the legal definition of a ‘company’ can be placed under restructuring.
This guide explains exactly which businesses qualify, why trusts (including family trusts) occupy a middle position depending on how they are set up, and what sole traders and partnerships can realistically do instead.
Why SBR Is Limited to Companies
Part 5.3B of the Corporations Act 2001 (which operates the SBR mechanism) sits within a piece of Commonwealth legislation that regulates companies, and its provisions are built around concepts, such as directors, company property, and creditor claims against a corporate entity, that only apply to a company as a distinct legal person. Here’s how:
- Section 453A defines when the restructuring of “a company” begins and ends
- Section 453B sets out how “a company” appoints a restructuring practitioner
- Neither provision extends this language to an individual trading as a sole trader, a partnership as a collection of individuals, or a trust, (which is a legal relationship rather than a separate legal person capable of holding property or being placed under restructuring in its own right)
Because of this, the eligibility criteria in section 453C of the Corporations Act 2001, including the $1 million liability threshold and the seven-year restriction on prior use, are only ever being applied to a company, never directly to an individual, a partnership, or a trust as such.
Business Structures and SBR Eligibility
Whether SBR is available depends on the specific legal structure operating the business, not on the business’s size, trading name, or industry.
Companies Registered Under the Corporations Act
A proprietary limited company, or any other company registered under the Corporations Act 2001, is the clearest case of an eligible structure, provided the other requirements in section 453C are also satisfied. This is the structure Part 5.3B was designed around, and the eligibility criteria, tax lodgement requirements, and creditor voting mechanics all assume this kind of corporate entity.
Trusts With a Corporate Trustee
Where a business operates through a trust with a corporate trustee, being a company registered under the Corporations Act 2001, that holds trust property and enters contracts on the trust’s behalf, SBR is generally available. In this scenario, the restructuring practitioner is appointed to the corporate trustee itself, and the trustee’s liabilities incurred in its capacity as trustee are assessed against the eligibility criteria in the same way as any other company’s liabilities.
This means a family business run through a discretionary trust — often called a family trust — or a unit trust structure can access SBR, but only because the trustee is a company. A trust with an individual acting as trustee, rather than a company, does not provide this pathway, since there is no company for a restructuring practitioner to be appointed to.
Sole Traders
A sole trader is an individual trading in their own name or under a registered business name, without a separate corporate entity. Because there is no company involved, a sole trader cannot access SBR under any circumstances, regardless of the size or complexity of the business.
Partnerships
A partnership is a relationship between two or more individuals or entities carrying on business together, governed at the state level by legislation such as the Partnership Act 1892 (NSW) or its equivalent in other states and territories. A partnership of individuals is not a company, and the partnership itself cannot appoint a restructuring practitioner under Part 5.3B.
Where one or more of the partners is itself a company, such as a corporate partner within a larger partnership structure, that specific corporate partner may separately be eligible for SBR in relation to its own liabilities, but this does not extend SBR to the partnership as a whole or to the other individual partners.
Incorporated Associations and Other Bodies
An incorporated association registered under state-based legislation, such as the Associations Incorporation Act 2009 (NSW), is a distinct type of body corporate rather than a company registered under the Corporations Act 2001. Unless such a body has separately registered as a company, it falls outside the scope of Part 5.3B in the same way a partnership or sole trader does.
The same applies to an unincorporated association, such as an informal club or community group with no separate legal structure at all — with no company involved, there is nothing for a restructuring practitioner to be appointed to.
What Sole Traders Can Do
A sole trader facing unmanageable business debt has options under the Bankruptcy Act 1966 (Cth), which covers individuals rather than companies.
- Debt agreement (Part IX): lets you propose a binding compromise with creditors without becoming bankrupt. Eligibility depends on your unsecured debts, property, and after-tax income each sitting below thresholds set under section 185C — check the current amounts, as these are updated periodically.
- Personal insolvency agreement (Part X): a more flexible option with no fixed thresholds, started by giving a controlling trustee authority under section 188 and a draft agreement under section 188A. It’s a more formal process, including a creditors’ meeting.
- Informal negotiation: where the debt is manageable, negotiating directly with creditors remains an option, without the formal process above.
Both a debt agreement and a personal insolvency agreement count as an act of bankruptcy — if creditors reject the proposal, they can use this as grounds to pursue bankruptcy instead.
What Partnerships Can Do
A partnership isn’t a separate legal person, so partnership debt is ultimately the personal responsibility of each partner, subject to the partnership agreement and the relevant state Partnership Act.
- The same personal insolvency options above apply, but separately to each partner
- Partners can also negotiate a dissolution or restructure of the partnership itself, under general contract and partnership law
- If partners disagree on how to proceed, this is a commercial and legal negotiation governed by the partnership agreement and state law — there’s no fixed statutory process like Part 5.3B to fall back on
Converting to a Company Structure
Incorporating a company to take over the business can be a legitimate step going forward — but it doesn’t retrospectively bring existing debts into scope for SBR.
- Debts already owed personally by a sole trader or partner stay personal debts, even after a new company is incorporated
- Only debts the new company incurs itself, after incorporation, could ever fall within a future SBR for that company
- Transferring a business into a new company shortly before insolvency can raise separate issues, including voidable transaction and phoenixing concerns under the Corporations Act 2001 — get advice before taking this step
Practical Considerations Before Restructuring
Before assuming a particular restructuring or insolvency pathway is available, business owners should confirm exactly how the business is legally structured, rather than relying on the trading name or how the business is described day to day.
Your position may be clearer once you have confirmed:
- Whether the business operates through a company registered under the Corporations Act 2001, and if so, whether that company is the entity that actually holds the business’s contracts and liabilities.
- Whether a trust is involved, and if so, whether the trustee is a company or an individual.
- Whether more than one person or entity is involved in a way that constitutes a partnership under the relevant state Partnership Act.
- Whether any corporate entity within the structure has its own separate liabilities that could be assessed for SBR eligibility in its own right.
Once the correct structure is confirmed, the available options, whether SBR, a Bankruptcy Act process, or informal negotiation, follow directly from that structure rather than from the size or industry of the business.
At Halo Advisory, we work for you — the director, trustee, partner or sole trader. Financial expert Greg Bartels offers a no-obligation consultation to confirm your business structure, assess whether SBR or another process applies, and identify the realistic options available to you. Get in touch today.
FAQs
Can a sole trader use Small Business Restructuring?
No. SBR under Part 5.3B of the Corporations Act 2001 is only available to a company. A sole trader is an individual, not a separate corporate entity, and has no company for a restructuring practitioner to be appointed to.
Can a partnership use Small Business Restructuring?
No, not as a partnership. A partnership is a relationship between individuals or entities, not a company. A corporate partner within the partnership may separately be eligible for its own liabilities, but this does not extend to the partnership as a whole.
Can a trust, including a family trust, use Small Business Restructuring?
Yes, but only if the trustee is a company. Where a trust — including a family (discretionary) trust or unit trust — has a corporate trustee registered under the Corporations Act 2001, that trustee company can be placed under restructuring for liabilities incurred in its capacity as trustee.
A trust with an individual trustee cannot access SBR.
What can a sole trader do instead of SBR?
Options under the Bankruptcy Act 1966 include a debt agreement under Part IX, subject to income, asset and debt thresholds under section 185C, or a personal insolvency agreement under Part X. Informal negotiation directly with creditors is also available without these formal consequences.
Does incorporating a company let me access SBR for existing debts?
No. Debts already owed personally by a sole trader, or by individual partners, remain personal debts regardless of later incorporation. Only liabilities the new company incurs itself after incorporation would potentially fall within a future SBR for that company.
Are debt agreements the same as Small Business Restructuring?
No. A debt agreement under Part IX of the Bankruptcy Act 1966 is a personal insolvency process for individuals with debts, assets and income below prescribed thresholds. SBR under the Corporations Act 2001 is a corporate process with no equivalent income or asset caps.
Can an incorporated association use SBR?
Generally, no. An incorporated association registered under state legislation, such as the Associations Incorporation Act 2009 (NSW), is a different type of body corporate to a company registered under the Corporations Act 2001, and falls outside Part 5.3B unless separately incorporated as a company.
Is bankruptcy the only option for an individual sole trader?
No. Bankruptcy is one option under the Bankruptcy Act 1966, but a debt agreement under Part IX, a personal insolvency agreement under Part X, or informal negotiation with creditors may achieve a resolution without the debtor being made bankrupt, depending on the individual’s circumstances.
