Quick Summary
A director generally can’t use SBR for a second company within seven years if they (or a recent director) were involved in an earlier SBR or simplified liquidation. Section 453C(1)(b) and regulation 5.3B.03(2) set this out. A limited exception applies to related bodies corporate where the relevant timing requirements are satisfied.
On this page
- Introduction
- Why the Restriction Matters
- Legal Basis
- Who is Considered as “Director”?
- Does an Unsuccessful Restructuring Count?
- Related Body Corporate Exception
- Can Two Restructurings Run at the Same Time?
- What Happens if the Restriction Applies?
- Next Steps
- FAQs
Introduction
Many Australian business directors who oversee multiple companies may think they can use Small Business Restructuring for multiple companies independently, provided it separately satisfies the liability threshold and other eligibility requirements.
But that is not the case always.
Part 5.3B of the Corporations Act 2001 restricts eligibility at both the company level and the director level. A restructuring involving one company may affect whether another company can access SBR later, even if the businesses operate in different industries and have separate creditors.
The key question is not only whether the current company meets the SBR requirements. Directors must also examine the restructuring history of:
- every current director;
- anyone who was a director of the company during the previous 12 months;
- the company itself; and
- any person who may have acted as a de facto or shadow director.
This guide explains how the restriction works, when an exception may apply and what directors should check before appointing a practitioner for another company.
For the full picture of standard eligibility requirements, see our guide: Small Business Restructuring (SBR) Eligibility.
Why the Restriction Matters
The restriction is particularly important for directors who operate:
- multiple businesses through separate companies;
- different franchise locations;
- companies involved in separate trading activities;
- joint ventures; or
- businesses within a corporate group.
The companies do not need to be commercially connected for the director-level restriction to be relevant. The focus is generally on the director’s history and the company’s prior use of SBR or simplified liquidation.
Eligibility is assessed when the restructuring begins. Under the legislation, restructuring begins when the restructuring practitioner is appointed.
This means an appointment made without checking the relevant history may result in the company being ineligible from the outset. The issue may not be something that can be fixed later by changing directors or providing additional information.
Legal Basis
The restriction operates through section 453C of the Corporations Act 2001, supported by regulation 5.3B.03 of the Corporations Regulations 2001.
There are two separate restrictions:
- a director-level restriction; and
- a company-level restriction.
These restrictions operate independently. A company may be ineligible because of its own history, a director’s history with another company, or both.
Director-Level Restriction
Section 453C(1)(b) applies where a current director, or a person who was a director of the company during the 12 months before the restructuring practitioner’s appointment, was also a director of another company that:
- has been under restructuring; or
- has been subject to the simplified liquidation process.
The earlier process must generally have occurred within the prescribed seven-year period.
This is the provision that most directly answers whether the same director can use SBR for more than one company. It tracks the director’s involvement across companies rather than looking only at the company seeking to enter SBR.
Company-Level Restriction
Section 453C(1)(c) separately considers whether the company itself has previously been under restructuring or subject to simplified liquidation during the prescribed period.
This prevents a company from repeatedly using SBR as a recurring debt-management process.
For example, the second company may be affected in either of two ways:
- the company previously used SBR; or
- one of its current or recent directors was involved with another company that used SBR.
The two restrictions should be checked separately.
Seven-Year Period
Regulation 5.3B.03 prescribes a seven-year period for both the director-level and company-level restrictions.
The relevant period is generally measured backwards from the day the restructuring begins.
If the earlier restructuring occurred more than seven years before the proposed appointment, it will generally no longer affect eligibility under that particular restriction. However, all other SBR requirements must still be met at the time of the new appointment.
Directors should calculate the dates carefully. The relevant date is not necessarily:
- the date creditors voted;
- the date the plan was accepted;
- the date the company became insolvent; or
- the date the director resigned.
The appointment date of the restructuring practitioner is central to the eligibility assessment.
Who is Considered as “Director”?
The restriction applies to current directors and people who were directors of the company during the 12 months before the restructuring practitioner’s appointment.
A director cannot generally avoid the restriction simply by resigning shortly before the company seeks to enter SBR. The 12-month look-back is designed to prevent eligibility restrictions being avoided through a late resignation.
The review should also consider whether anyone acted as a:
- de facto director; or
- shadow director.
A person may be treated as acting in the position of director even if they were not formally appointed or listed as a director. This can be relevant where an individual controlled key decisions, directed the company’s affairs or exercised significant influence over the board.
The exact legal position depends on the facts, so directors should obtain professional advice where a person’s role is unclear.
Does an Unsuccessful Restructuring Count?
An earlier restructuring may still be relevant even if it did not result in an accepted plan.
The eligibility provisions refer to a company that has “been under restructuring”. This focuses on the company’s status after the restructuring practitioner was appointed, rather than only on whether creditors ultimately accepted the plan.
As a result, directors should not assume that the restriction disappears because the earlier process:
- ended before the creditor vote;
- was terminated by the practitioner;
- was rejected by creditors; or
- failed for another procedural reason.
The legislation and current ASIC guidance treat the appointment of the practitioner as a significant point in the restructuring process.
Because an unsuccessful earlier process can have important consequences, the dates and circumstances should be reviewed by a restructuring practitioner before a second appointment is considered.
A limited exception may apply where the earlier and current companies are related bodies corporate. Regulation 5.3B.03(4) provides an exception in prescribed circumstances.
This exception is designed for genuine corporate groups and does not automatically apply merely because two companies:
- have the same director;
- use the same trading name;
- share employees;
- have common suppliers; or
- are commercially associated.
What Is a Related Body Corporate?
The relationship is generally assessed under section 50 of the Corporations Act 2001. It may include:
- a holding company and its subsidiary; or
- two subsidiaries of the same holding company.
Two companies owned directly by the same individual do not automatically qualify as related bodies corporate simply because they have a common director.
The ownership and control structure should be examined carefully before relying on the exception.
The Timing Requirement
The related-body-corporate exception also has a timing condition.
ASIC guidance states that the exception may apply where the relevant appointment occurs within 20 business days before the day on which the eligibility criteria are met.
This means the exception is intended for closely coordinated restructuring activity within a genuine corporate group. It is not a general exemption that allows related companies to use SBR at any time during the seven-year period.
Directors should compare:
- the date the first practitioner was appointed;
- the date the second restructuring begins;
- the corporate relationship between the companies; and
- the precise wording of the current regulation.
Do not rely on the exception without confirming both the relationship and the timing.
Can Two Restructurings Run at the Same Time?
This is a complex issue and should not be assumed to be permitted simply because the companies are separate.
The director-level restriction considers whether a current or recent director has been a director of another company that has been under restructuring. A company that is already under restructuring may therefore create an issue when a second appointment is considered.
The position may be different for related bodies corporate if the specific exception applies. For unrelated companies, directors should obtain advice before attempting concurrent appointments.
The practical risks include:
- the second company being ineligible;
- the practitioner ending the process;
- additional professional costs;
- increased creditor pressure; and
- potential questions about the accuracy of the director’s eligibility declaration.
What Happens if the Restriction Applies?
If the director-level or company-level restriction applies, the second company is not eligible for SBR at that time, even if it otherwise appears to meet the requirements.
This does not necessarily mean the company has no available options. Depending on its financial position, directors may need to consider:
- voluntary administration under Part 5.3A;
- an informal arrangement with creditors;
- refinancing or asset sales;
- a negotiated payment arrangement; or
- creditors’ voluntary liquidation.
The seven-year director-linked restriction applies specifically to SBR and simplified liquidation. It does not prevent a company from considering every other formal or informal insolvency option.
For a fuller comparison, see: Voluntary Administration vs Small Business Restructuring: Which Option Is Better for Your Company?
If the restriction is temporary, directors may also consider whether the business can safely continue until the relevant period has elapsed. However, delaying action may increase the risk of insolvent trading, creditor enforcement and further losses.
Next Steps
Before appointing a restructuring practitioner for another company, directors should:
- list every current director of the company;
- identify anyone who was a director during the previous 12 months;
- review each person’s directorship history;
- identify any company that used SBR or simplified liquidation;
- confirm the appointment dates of earlier practitioners;
- check whether the relevant seven-year period has expired;
- review the company’s own restructuring history;
- assess whether any person may have acted as a de facto or shadow director;
- determine whether the companies are related bodies corporate; and
- check whether the 20-business-day timing condition applies.
The company should also confirm its other eligibility requirements, including:
- insolvency or likely insolvency;
- total admissible debts and claims within the applicable threshold;
- payment of employee entitlements that are due and payable; and
- up-to-date required tax lodgements.
Do not wait until after the practitioner has been appointed to investigate a prior restructuring. Eligibility should be confirmed before the appointment is made. This restriction should be treated as a threshold question, checked first, before any other part of the restructuring is planned.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation consultation to assess your position and help you understand the best way forward. Get in touch today.
FAQs
Can the same director use SBR for two unrelated companies?
Generally, not within the prescribed seven-year period. A company may be ineligible if a current director, or someone who was a director during the previous 12 months, was also a director of another company that underwent SBR or simplified liquidation during that period.
Does resigning as a director avoid the restriction?
Not necessarily. The 12-month look-back means that resigning shortly before appointing a restructuring practitioner may not remove the director’s relevant history from consideration.
Does an unsuccessful earlier restructuring still count?
It may. The relevant provisions focus on whether the earlier company was under restructuring, rather than only on whether creditors accepted the plan. Directors should confirm the position with a restructuring practitioner before assuming that an unsuccessful process does not count.
Can related companies both use SBR?
Sometimes. A limited exception may apply to related bodies corporate if the statutory relationship and timing requirements are satisfied. The exception does not automatically apply to companies that merely share a director or trading name.
Are two companies with the same director automatically related bodies corporate?
No. A related-body-corporate relationship generally depends on a holding-company or subsidiary structure under the Corporations Act 2001. Common directorship, shared branding or common ownership by an individual is not enough on its own.
Can a director run two SBRs at the same time?
The position can be complex and should not be assumed to be permitted. The second company may be affected by the first company already being under restructuring. Specific advice should be obtained before appointing another practitioner.
When does the seven-year period end?
The period is generally calculated backwards from the day the current restructuring begins. The relevant dates should be checked carefully against the appointment date of the earlier practitioner and the current statutory rules.
What options are available if SBR is unavailable?
Depending on the company’s financial position, alternatives may include voluntary administration, informal negotiations with creditors, refinancing, asset sales or creditors’ voluntary liquidation.
Does a de facto or shadow director’s history count?
It may. The eligibility review should not be limited to formally appointed directors where another person may have acted in the position of director or exercised significant control over the company.
