Secured creditors are treated differently from unsecured creditors during SBR. They generally retain their security interest, and enforcement is largely restricted during the restructuring period — except for a creditor holding security over the whole, or substantially the whole, of the company’s assets, who has a limited 13-business-day window to enforce or step outside the process.
On This Page
- Introduction
- How Are Secured Creditors Treated
- Can Secured Creditors Continue Recovery Action
- Do Secured Creditors Have to Vote on the Restructuring Plan?
- What Happens to Secured Debts if the SBR Plan Is Accepted?
- Can a Business Continue Using Secured Assets
- What If a Secured Creditor Enforces Their Security?
- Practical Tips for Dealing With Secured Creditors
- Next Steps
- FAQs
Introduction
Secured creditors often play an important role in a business’s financial position. Whether the security is over equipment, vehicles or property, their rights are generally different from those of unsecured creditors during Small Business Restructuring. Understanding those differences can help you plan with greater confidence.
The guide covers how secured creditors are treated, when they can take enforcement action, and what happens if an SBR plan is accepted.
How Are Secured Creditors Treated
Secured creditors generally keep their security rights during Small Business Restructuring (SBR). Unlike unsecured creditors, they are not automatically bound by the restructuring plan for the secured portion of their debt unless they agree to different arrangements.
A secured creditor has a legal interest in a specific business asset, such as property, vehicles, machinery or equipment. If the business defaults on the loan, the creditor may have the right to enforce that security and recover what is owed.
During SBR:
- Secured creditors generally retain their rights over the secured assets.
- The secured portion of their debt is usually excluded from the restructuring plan unless the creditor agrees otherwise.
- If part of the debt is unsecured because the security is worth less than the amount owed, that unsecured portion may be included in the plan.
Businesses may negotiate separate repayment arrangements with secured creditors, but these require the creditor’s agreement.
Can Secured Creditors Continue Recovery Action
Generally, no — not without consent or court leave.
Like unsecured creditors, secured creditors are generally restricted from enforcing their security once a company enters SBR, unless the practitioner consents or the court grants leave.
There is one significant exception. If a secured creditor holds a charge over “all or substantially all” of the company’s assets (known as a General Security Agreement, or GSA), they have a strict 13-business-day “decision period” from the start of the SBR to decide whether to enforce their security.
If they act within that window, they can enforce or appoint a receiver as usual. If they do not act within the 13 business days, their right to enforce is generally frozen for the rest of the SBR process, unless they later obtain the court’s permission or the practitioner’s consent.
Outside of this narrow GSA exception, whether a creditor can take enforcement action depends on factors such as:
- the type of security held
- the terms of the security agreement
- whether enforcement action had already commenced before the SBR began
- the relevant provisions of insolvency law
Do Secured Creditors Have to Vote on the Restructuring Plan?
Not always. A secured creditor is generally only entitled to vote on the unsecured portion of its debt if it chooses to participate in the restructuring plan.
For example:
- If a creditor is fully secured, it will usually rely on its security rather than vote on that secured amount.
- If part of the debt remains unsecured after accounting for the value of the secured asset, that unsecured balance may be included in the plan.
- The creditor may vote on that unsecured portion if it is admitted for voting purposes.
Note: In case of disputes, the Small Business Restructuring Practitioner (SBRP) has the ultimate statutory power to resolve these valuation disputes and determine the final admissible voting value.
What Happens to Secured Debts if the SBR Plan Is Accepted?
If an SBR plan is accepted, secured debts generally remain unchanged unless the secured creditor agrees to different terms. The restructuring plan primarily deals with eligible unsecured debts, while secured creditors usually retain their existing rights over the assets securing their loans.
In practice, this means:
- Security over the asset remains in place.
- The business must continue meeting the terms of the secured loan or finance agreement.
- The secured creditor’s enforcement rights generally continue if the business defaults.
- Only any unsecured portion of the debt, if applicable, may be dealt with under the restructuring plan.
In some cases, a business may negotiate new repayment arrangements with a secured creditor alongside the SBR process. However, these changes are separate from the restructuring plan and require the secured creditor’s agreement.
Can a Business Continue Using Secured Assets
In many cases, yes. A business can often continue using secured assets during the restructuring process, provided it continues to meet its obligations under the relevant finance or security agreement.
This may include assets such as:
- work vehicles
- manufacturing equipment
- machinery
- business premises subject to security
- other financed business assets
Continuing access to these assets is often essential for maintaining normal business operations while the restructuring plan is being prepared and considered.
However, if a secured creditor exercises its enforcement rights, the business may lose access to the secured asset.
What If a Secured Creditor Enforces Their Security?
If a secured creditor enforces its security, the consequences will depend on the asset involved and the nature of the business.
Enforcement could result in:
- repossession of financed vehicles or equipment
- appointment of a receiver over secured assets
- sale of secured property
- disruption to normal business operations
Losing key business assets may make it harder to continue trading or successfully complete the restructuring process.
Practical Tips for Dealing With Secured Creditors
Managing secured creditors proactively can improve the chances of a successful restructuring.
Consider the following steps:
- Identify every secured debt before commencing SBR.
- Review each loan and security agreement carefully.
- Continue meeting repayment obligations where possible.
- Maintain open communication with secured lenders.
- Consider whether separate negotiations with secured creditors are appropriate.
- Ensure the restructuring plan accurately reflects the treatment of secured and unsecured debts.
Next Steps
If your business has secured creditors, it’s important to understand how those debts may affect your restructuring options. Taking action early can help protect key business assets, reduce uncertainty, and improve your chances of a successful outcome.
Practical next steps:
- List all secured creditors and the assets they hold as security.
- Review your loan agreements and understand your repayment obligations.
- Identify which secured debts sit outside the restructuring plan.
- Speak with secured creditors early if you need to discuss repayment options.
- Seek professional advice to understand the best path forward for your business.
At Halo Advisory, we work with business owners and directors facing financial distress. Financial expert Greg Bartels offers a no-obligation consultation to help you assess your position, understand your restructuring options, and identify the most appropriate path forward. Get in touch today.
FAQs
Can a secured creditor agree to be included in a Small Business Restructuring plan?
Yes. A secured creditor can agree to different repayment arrangements, but any changes must be negotiated and accepted by both parties.
What assets are commonly used as security for business loans?
Common secured assets include commercial property, vehicles, machinery, equipment, inventory and accounts receivable. The assets used depend on the terms of the loan.
Can multiple secured creditors hold security over different assets?
Yes. A business can have multiple secured creditors, each holding security over different assets under separate loan agreements.
Should I keep making repayments to secured creditors during SBR?
If possible, yes. Keeping up with repayments may help you retain secured assets and reduce the risk of enforcement action.
Can refinancing secured debt improve the chances of a successful restructuring?
In some cases, yes. Refinancing or renegotiating a secured loan may improve cash flow if the lender agrees.
Does the Personal Property Securities Register (PPSR) matter during SBR?
Yes. A registered security interest on the PPSR can strengthen a secured creditor’s rights over personal property.
Can I obtain new secured finance during Small Business Restructuring?
Possibly. Approval will depend on the lender’s assessment of your business and its ability to repay the new loan.
