Quick Summary
A Small Business Restructuring plan can fail if the company wasn’t eligible, creditors voted against it, the proposed return was lower than liquidation, or the practitioner ended the process before a vote. Disputed debts, incomplete information, poor tax compliance, and independence concerns can also undermine creditor confidence.
Free Download: SBR Plan Rejection Preparation Checklist [Get Your Copy]
Table of contents
- Introduction
- Why a rejected plan matters
- Common Reasons
- The company was not actually eligible
- Creditors voted against the plan
- The plan offered less than creditors would get in liquidation
- The schedule of debts and claims was disputed
- The restructuring proposal statement was incomplete or inaccurate
- The practitioner ended the restructuring before a vote
- Related-Party or independence concerns
- What happens after a plan is rejected
- Can a rejected plan be resubmitted
- How to reduce the risk of rejection
- What to do if your plan was rejected
- FAQs
Introduction
Small Business Restructuring, or SBR, is a formal debt restructuring process under Part 5.3B of the Corporations Act 2001 (Cth). It allows an eligible company to continue trading while its directors remain in control of the business and propose a restructuring plan to creditors.
Not every restructuring plan is accepted. Creditors may vote against a plan during the acceptance period. In other cases, the appointed Small Business Restructuring Practitioner, or SBRP, may end the process before the plan reaches creditors.
A plan is accepted only when the majority in value of affected creditors who return statements to the practitioner vote in favour. The usual acceptance period is 15 business days, although a longer period may apply in some circumstances.
This guide explains why an SBR plan may fail, what happens after rejection, and what directors should consider before taking their next step.
Not sure why your restructuring plan was rejected, or want to understand your options before proposing one? Book a free, no-obligation consultation with SBR expert Greg Bartels to review what happened and discuss what can be done next.
Why a Rejected Plan Matters
A rejected restructuring plan is more than a delay — it means the proposed compromise hasn’t gone through, and the company’s underlying financial position is still unresolved.
The protections available during restructuring may also end. Creditors can resume recovery action, depending on the company’s specific circumstances.
This can increase pressure from:
- the Australian Taxation Office;
- trade creditors;
- landlords and secured lenders;
- employees with outstanding entitlements; and
- creditors considering statutory demands or winding-up action.
The company may need to consider alternatives such as an informal arrangement, voluntary administration or creditors’ voluntary liquidation. Directors must also reassess whether the company can continue trading without breaching their duty to prevent insolvent trading.
A rejected plan does not automatically mean the business has no future. However, directors should obtain advice quickly, rather than assume the same plan can simply be resubmitted.
Common Reasons
There’s rarely just one reason. A plan can fail because of an eligibility issue, creditor voting, weaknesses in the proposal, or concerns about the company’s future viability.
The Company Was Not Eligible
A company must meet the SBR eligibility requirements when it enters the restructuring process. These requirements include being incorporated, resolving that it is insolvent or likely to become insolvent, and having total liabilities within the applicable threshold.
The company must also have dealt with employee entitlements that are due and payable and ensured that its required tax lodgments are up to date before the plan is proposed. The current SBR liability threshold is generally $1 million, subject to the detailed rules about which liabilities are included or excluded.
Read about SBR eligibility criteria in our blog: Small Business Restructuring (SBR) Eligibility.
Eligibility problems may arise where:
- the company’s liabilities were calculated incorrectly;
- employee entitlements remained unpaid;
- tax returns or BAS lodgments were outstanding;
- the company had already used a restricted restructuring or simplified liquidation process;
- the company was already subject to another insolvency process; or
- information provided to the practitioner was incomplete.
If the company is not eligible, the practitioner may end the process before a plan is put to creditors. This is technically different from creditors rejecting the plan, but the practical result is similar: no restructuring plan is implemented.
Creditors Voted Against the Plan
Creditors decide whether to accept the plan during the acceptance period. A plan is accepted only if the majority in value of affected creditors who return statements vote in favour.
This means the result is based on debt value, not the number of creditors voting.
Example:
Five creditors vote in favour of SBR and two vote against — but those two opposing creditors hold more debt by value than the five who support it. The plan can still fail, because the opposing creditors represent the greater value of returned claims.
A single large creditor can therefore have a decisive influence. This may include the ATO, a bank, a major supplier or a related commercial lender.
The Plan Offered Less Than Creditors Would Get in Liquidation
Creditors generally compare the proposed return under the restructuring plan with the amount they may recover if the company enters liquidation.
If creditors believe liquidation would provide a better return, they have little financial reason to accept the plan. This is particularly important where the proposal:
- relies on optimistic future sales;
- underestimates liquidation recoveries;
- excludes assets that may be available to creditors;
- does not explain the source of proposed contributions; or
- provides insufficient detail about the company’s ability to continue trading.
The restructuring proposal statement should include a credible and well-supported comparison between the proposed plan and the likely liquidation outcome.
A plan does not need to produce a perfect return for creditors. However, it should give creditors a clear commercial reason to support it.
The Schedule of Debts and Claims Was Disputed
The restructuring proposal statement includes a schedule of debts and claims. Creditors can notify the SBRP if they disagree with the amount or treatment of their claim. The regulations provide a process for creditors to dispute the company’s assessment of their debts.
Disputes may arise where:
- invoices have not been reconciled;
- payments were allocated incorrectly;
- interest or penalties were omitted;
- related-party balances were unclear;
- debt assignments were not properly recorded; or
- the company’s accounting records do not match creditor records.
A disputed debt does not necessarily cause automatic rejection. However, unresolved disputes can extend the acceptance process and reduce confidence in the accuracy of the information supporting the plan.
Creditors are less likely to support a proposal when they cannot establish the company’s true financial position.
The Restructuring Proposal Statement Was Incomplete or Inaccurate
Creditors rely on the restructuring proposal statement when deciding whether to vote in favour of a plan. The statement should accurately explain the company’s financial position, the proposed restructuring terms, the treatment of property, any proposed asset sales and the SBRP’s remuneration.
Problems may include:
- inconsistent figures across financial statements;
- unsupported revenue or profit forecasts;
- missing information about assets;
- incomplete disclosure of creditors;
- unclear payment terms;
- unexplained related-party transactions;
- incorrect treatment of secured claims; or
- inconsistencies between the proposal and the company’s accounting records.
Even where the underlying business is viable, incomplete or inaccurate information can cause creditors to reject the plan.
A proposal must be commercially realistic as well as technically compliant.
The Practitioner Ended the Process Before a Vote
A Small Business Restructuring Practitioner (SBRP) may end the restructuring before creditors vote if the practitioner forms the required view that the company is not eligible or that continuing the process would not be in creditors’ interests.
This may occur if new information reveals:
- additional undisclosed liabilities;
- inaccurate financial records;
- non-genuine trading activity;
- continuing losses;
- a lack of funding for future operations;
- unpaid current liabilities; or
- a proposed plan that is no longer achievable.
The practitioner may also conclude that the business is not viable enough to justify continuing with the process.
Directors may describe this as their plan being rejected, but technically the plan may never have reached the voting stage.
The proposal should identify relevant relationships involving affected creditors and the SBRP. Creditors may be concerned where:
- a large creditor is connected to the directors;
- related parties receive preferential treatment;
- debts owed to associated entities appear inflated;
- the SBRP’s independence is questioned; or
- the plan provides benefits that are not adequately explained.
A related-party debt is not automatically invalid. However, unclear relationships or disproportionate treatment can reduce creditor confidence and affect the voting outcome.
The proposal should explain related-party claims transparently and ensure that all creditor information is properly supported.
Trying to work out which of these applied to your plan? Our SBR Plan Rejection Diagnosis Checklist walks through the common causes so you can pinpoint what actually happened.
What Happens After a Plan Is Rejected
If creditors reject the restructuring plan, the SBR process ends and the plan does not bind creditors.
The company’s next steps depend on its current financial position. Directors may need to consider:
- negotiating directly with creditors;
- entering voluntary administration;
- appointing a liquidator;
- refinancing or selling assets;
- obtaining additional working capital; or
- ceasing trading in an orderly way.
Creditors may also resume recovery action after the restructuring protections end. This could include demands for payment, enforcement action or an application to wind up the company, depending on the circumstances.
Directors must reassess the company’s solvency immediately. Continuing to trade while the company cannot pay debts as they fall due may create personal exposure for insolvent trading.
A rejected plan should therefore trigger an urgent review of:
- available cash;
- debts due in the next 13 weeks;
- employee entitlements;
- tax liabilities;
- creditor enforcement activity;
- asset values; and
- the viability of the underlying business.
Can a Rejected Plan Be Resubmitted?
Sometimes, but not automatically.
The company may be affected by restrictions on using the SBR process again, depending on whether the previous process progressed to a restructuring plan, how the process ended and whether the company or its directors are connected with another company that has used a restricted insolvency process.
The relevant rules may also restrict access following a previous restructuring or simplified liquidation within a prescribed period.
Directors should not assume that a rejected plan can simply be amended and resubmitted. A restructuring practitioner should first assess:
- how the previous process ended;
- whether the company remains eligible;
- whether any statutory exclusion applies;
- whether the financial position has materially changed; and
- whether creditors are likely to support a revised proposal.
Submitting another plan without addressing the original reasons for rejection is unlikely to improve the outcome.
How to Reduce the Risk of Rejection
Many rejection risks can be addressed before the SBRP is appointed or before the plan is prepared.
Directors should:
- confirm the company’s eligibility using current and reconciled financial information;
- ensure required tax lodgments are up to date;
- pay employee entitlements that are due and payable;
- calculate total liabilities accurately;
- reconcile creditor balances and disputed claims;
- prepare realistic cash-flow forecasts;
- identify the company’s largest creditors;
- assess the likely liquidation return;
- explain how the company will fund future trading; and
- disclose related-party claims and transactions clearly.
Engaging with major creditors early may also help directors understand what those creditors would need to see before supporting a plan. This does not guarantee a favourable vote, but it can prevent a proposal from being built around unrealistic assumptions.
The proposal should show not only how creditors will be paid, but also why the business is capable of meeting its obligations after the restructuring period.
Before you decide what’s next, it helps to know exactly why the plan failed. Download our SBR Plan Rejection Diagnosis Checklist to work through the likely causes.
Download the FREE checklist →
What to Do if Your Plan Was Rejected
A rejected restructuring plan means the proposed plan was not accepted. It does not, by itself, establish that the business cannot be saved.
However, directors should act quickly. The financial information used for the original plan may already be out of date, and creditor pressure may increase once the process ends.
Immediate steps should include:
- identifying the exact reason the plan failed;
- obtaining the practitioner’s relevant reports and correspondence;
- updating the company’s balance sheet and cash-flow forecast;
- reviewing new debts incurred during the process;
- contacting major creditors where appropriate;
- assessing whether another SBR attempt is legally available; and
- considering voluntary administration, an informal arrangement or liquidation.
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
Why do restructuring plans get rejected?
An SBR plan can get rejected for several reasons. Common reasons include:
- the company was not eligible,
- the proposed return was lower than the likely liquidation outcome,
- a major creditor voted against the plan,
- the proposal contained incomplete or inaccurate information,
- poor tax compliance, and
- disputed debt schedules.
The ATO identifies poor tax compliance history as one factor that may influence its approach to a restructuring plan.
Can one creditor reject an entire restructuring plan?
Yes. Acceptance is based on the majority in value of affected creditors who return statements, rather than the number of creditors supporting the plan. A single large creditor may therefore determine the outcome if its claim represents more than half of the relevant returned debt value.
Does the ATO always reject restructuring plans?
No. The ATO does not automatically reject every restructuring plan. Its position may depend on factors such as the company’s compliance history, the accuracy of its financial information, the proposed return and whether the plan provides a credible alternative to liquidation.
Can a practitioner end restructuring before creditors vote?
Yes. The SBRP may end the process before a vote if the company is not eligible or if continuing would not be in creditors’ interests. This is different from creditors voting against the plan, because the plan may never reach the acceptance stage.
What happens if the plan is rejected?
The plan is not implemented and the restructuring process ends. The company must reassess its financial position and consider options such as an informal creditor arrangement, voluntary administration or liquidation. Directors must also reconsider whether the company can continue trading without breaching their duties.
Can a rejected restructuring plan be resubmitted?
Not automatically. Whether another attempt is available depends on how the earlier process ended, how far it progressed and whether any prior-use restrictions apply. The company’s eligibility should be reviewed by a restructuring practitioner before any new appointment.
Does a disputed debt schedule automatically cause rejection?
No. A disputed claim does not automatically invalidate the plan. However, unresolved disputes can affect the acceptance period and reduce confidence in the company’s financial information. The company should reconcile creditor claims and provide supporting records as early as possible.
How can directors reduce the risk of rejection?
Directors can reduce the risk by confirming eligibility, updating tax lodgments, paying due employee entitlements, reconciling debts, preparing realistic forecasts and providing a well-supported comparison between the proposed plan and liquidation.
What is the difference between plan rejection and practitioner termination?
Plan rejection occurs when creditors vote against the proposal during the acceptance period. Practitioner termination occurs when the SBRP ends the process before the plan is accepted, usually because the company is ineligible or continuing is not in creditors’ interests.
