Defaulting on a Small Business Restructuring (SBR) plan can have serious consequences. A default may allow creditors to resume debt recovery action, and directors must promptly assess the company’s financial position and consider their available options. Acting early and seeking professional advice can help businesses respond to a default and minimise further financial risk.
On This Page
- Introduction
- SBR Plan Changes After Defaults
- Directors’ Responsibilities After a Default
- Reducing the Risk of Defaults
- Next Steps
- FAQs
Introduction
Missing a repayment under a Small Business Restructuring plan can feel overwhelming. However, it doesn’t always mean the end of your business.
The outcome depends on your circumstances and how quickly you respond to the problem. Knowing your obligations can help you avoid making a difficult situation worse.
If a company defaults on its Small Business Restructuring (SBR) plan, this doesn’t necessarily end the arrangement straight away. Under the regulations governing restructuring plans, a default generally needs to remain unrectified for 30 business days before the plan formally terminates on that basis.
A plan can also terminate sooner in other specific circumstances — for example, if a court orders termination, if the plan is expressed to end on a specified event within a shorter timeframe, or if the company later enters administration or liquidation.
If the 30-business-day rectification period passes without the default being fixed, or the plan terminates for one of these other reasons, the protections provided by the restructuring process no longer apply. Once that happens, creditors may:
- Resume debt recovery action
- Demand payment of the remaining debt
- Commence or continue legal proceedings where permitted
- Enforce their rights under any security they hold
The earlier directors respond to a default — ideally within that rectification window — the more options they are likely to have.
SBR Plan Changes After Defaults
Generally, no. Once a Small Business Restructuring (SBR) plan has been accepted by creditors, it cannot simply be changed because the company has defaulted. If the business can no longer meet its obligations, directors should seek professional advice to explore other available options.
An accepted restructuring plan is intended to be carried out according to its agreed terms. There is no automatic process under the SBR framework that allows the repayment amounts or conditions to be renegotiated after a default.
If the company’s financial position worsens, directors should:
- Review why the default occurred.
- Assess whether the business remains solvent.
- Obtain advice from a registered restructuring or insolvency practitioner.
- Consider whether another formal insolvency process or restructuring option is more appropriate.
Directors’ Responsibilities After a Default
After a default, directors must continue to meet their legal duties and carefully assess the company’s financial position. They should act promptly to determine whether the business can continue operating without becoming insolvent.
A default does not remove a director’s responsibilities. Instead, it increases the importance of monitoring the company’s finances and making decisions that protect the interests of the company and its creditors.
Directors should:
- Review whether the company remains solvent.
- Monitor cash flow and upcoming liabilities.
- Keep accurate financial records.
- Avoid insolvent trading.
- Seek advice from a registered restructuring or insolvency professional.
- Communicate with relevant stakeholders where appropriate.
Prompt action can help minimise further financial risk and preserve any remaining restructuring options.
Reducing The Risk of Defaults
Businesses can reduce risks by preparing a realistic restructuring plan and monitoring finances throughout the repayment period. Strong financial management makes it easier to meet the agreed obligations.
Many defaults happen when cash flow tightens or the agreed repayments are no longer affordable. Regular financial reviews can help identify problems before they become unmanageable.
Businesses can reduce the risk by:
- Preparing realistic cash flow forecasts.
- Monitoring income and expenses regularly.
- Setting aside funds for scheduled repayments.
- Addressing financial problems early.
- Reducing unnecessary operating costs where possible.
- Keeping accounting records accurate and up to date.
- Seeking professional advice before repayments become difficult.
Staying proactive throughout the restructuring process gives businesses a better chance of completing the plan successfully and returning to long-term financial stability.
Next Steps
If your company is struggling to meet the obligations of a Small Business Restructuring (SBR) plan, it’s important to act as soon as possible. Addressing repayment difficulties early can help preserve your options, minimise creditor action, and improve the chances of achieving the best possible outcome for your business.
Practical next steps include:
- Reviewing why the business has defaulted and assessing its current financial position.
- Updating your cash flow forecasts to determine whether future obligations can be met.
- Considering whether the company remains solvent and can continue trading safely.
- Communicating with your Small Business Restructuring Practitioner about the company’s circumstances.
- Taking action before further defaults or creditor recovery action reduce the options available to your business.
Seeking advice from an insolvency professionals like Halo Advisory helps to understand the options available if payments are defaulted. Financial expert Greg Bartels offers a no-obligation consultation to assess your position, explain your options, and help you address tax debt before enforcement action escalates. Get in touch today.
FAQs
Can a company continue trading after defaulting on a Small Business Restructuring plan?
Yes, a company may be able to continue trading after defaulting on an SBR plan, provided it remains solvent and directors meet their legal obligations. Whether trading should continue depends on the company’s financial position and should be assessed with professional advice.
Will a default affect the company’s ability to obtain finance in the future?
It can. Lenders may consider a previous default when assessing future loan applications, particularly if it indicates ongoing financial difficulties. Improving the company’s financial position and maintaining accurate records may help rebuild lender confidence over time.
Can secured creditors enforce their security after an SBR plan defaults?
Secured creditors generally retain their rights over secured assets. If the restructuring plan ends following a default, they may be able to enforce their security in accordance with the relevant laws and the terms of their security agreement.
Can a company enter another Small Business Restructuring plan after defaulting on one?
Not automatically. Whether a company is eligible for another restructuring process depends on its circumstances and the requirements of the legislation at the time. A restructuring or insolvency professional can advise whether another option is available.
What records should directors keep after an SBR plan default?
Directors should continue maintaining accurate financial records, including cash flow reports, bank statements, creditor communications, payment records, and management accounts. Good record-keeping helps directors demonstrate they are meeting their legal duties and supports informed decision-making.
What are the warning signs that a business may be heading towards default?
Common warning signs include ongoing cash flow shortages, difficulty paying suppliers or employees on time. Other signs are relying on short-term borrowing to meet everyday expenses, declining sales, and regularly missing repayment deadlines.
Does one missed payment automatically mean a company has defaulted on its SBR plan?
Not necessarily. Whether a missed payment amounts to a default depends on the terms of the restructuring plan and the circumstances surrounding the missed obligation. Directors should seek advice immediately if they think they cannot meet a scheduled payment.
Who decides whether an SBR plan has defaulted?
This depends on the terms of the restructuring plan and the facts of the situation. The Small Business Restructuring Practitioner can help determine whether the company has failed to meet its obligations and explain the consequences under the plan.
What should directors do before missing a payment under an SBR plan?
Directors should review their cash flow, identify the cause of the shortfall, and speak with their Small Business Restructuring Practitioner as soon as possible. Seeking advice before a payment is missed may help directors understand their obligations and available options.
Can the ATO take recovery action if a company defaults on its SBR plan?
Yes. If the protections provided by the restructuring process no longer apply following a default, the Australian Taxation Office (ATO) may resume its usual debt recovery actions, subject to the company’s circumstances and the relevant legislation.
Will directors become personally liable if the company defaults on its SBR plan?
Not simply because the company has defaulted. However, directors remain responsible for complying with their legal duties, and personal liability may arise in certain circumstances. For example, insolvent trading or where other legal obligations have not been met.
Can creditors negotiate directly with the company after an SBR plan defaults?
They may. Once the restructuring arrangement has ended, creditors and the company may choose to discuss repayment options or negotiate a commercial resolution. Whether an agreement can be reached will depend on the circumstances and the willingness of both parties.
Does defaulting on an SBR plan affect relationships with suppliers?
It can. Some suppliers may change payment terms, require payment upfront, or reassess their willingness to continue supplying goods or services.
How quickly should a company seek professional advice after defaulting on an SBR plan?
Immediately. The sooner directors obtain advice, the more likely they are to identify practical solutions before creditor action escalates or the company’s financial position deteriorates further.
