To be eligible for SBR, the company must be incorporated, have total liabilities within debt threshold, be insolvent, have paid due and payable entitlements, and have its required tax lodgements up to date. Restrictions may apply if the company has recently used SBR or simplified liquidation processes.
Not sure whether your company may qualify for Small Business Restructuring? Download our free SBR Eligibility Checklist to work through the key eligibility requirements, identify potential barriers, and understand whether SBR may be worth exploring further.
On This Page
- Introduction
- Why It Matters
- SBR Eligibility Requirements
- Common Reasons Companies Are Not Eligible for SBR
- Can a Company Become Eligible Later?
- SBR Eligibility Checklist
- Is Your Company Eligible for Small Business Restructuring?
- FAQs
Introduction
Small Business Restructuring (SBR) can be an effective way for eligible companies to deal with debt while continuing to trade. However, not every business can access the process.
Before appointing a Small Business Restructuring Practitioner or proposing a restructuring plan to creditors, directors must first find out whether the company meets the eligibility requirements.
This guide explains the key eligibility criteria for SBR, common reasons companies may not qualify, and what directors can do if their business is not yet eligible.
Why It Matters
Eligibility is one of the first issues that must be assessed before a company can enter Small Business Restructuring.
Unlike informal repayment arrangements, SBR is a formal process governed by legislation. Companies that do not meet the eligibility requirements cannot proceed with a restructuring plan until those requirements are satisfied.
Importantly, being in financial difficulty does not automatically make a company eligible for SBR. Factors such as the
- company’s liabilities,
- tax lodgement history,
- employee entitlements, and
- prior use of restructuring processes
can all affect eligibility.
The good news is that some eligibility issues can potentially be resolved before a restructuring practitioner is appointed. For example, a company may be able to bring outstanding tax lodgements up to date or address unpaid employee entitlements before proceeding.
SBR Eligibility Requirements
1. The Company Must Be Incorporated
Small Business Restructuring is only available to companies.
This means the business must be incorporated and registered under the Corporations Act (2001). Sole traders, partnerships and trusts cannot directly access the SBR process unless they operate through a company structure.
For example, if a café operates through a proprietary limited company (Pty Ltd), it may be eligible for SBR if it meets the other requirements. However, if the same café is operated by an individual as a sole trader, SBR is not available.
2. The Company Must Be Insolvent or Likely to Become Insolvent
Small Business Restructuring is designed for companies experiencing financial distress.
To be eligible, the company must either:
- Be insolvent, or
- Be likely to become insolvent in the future.
A company is generally considered insolvent if it cannot pay its debts as and when they fall due.
Common signs of insolvency may include:
- Ongoing cash flow shortages,
- Overdue tax liabilities,
- Unpaid supplier accounts,
- Difficulty meeting payroll obligations, or
- Reliance on payment extensions to continue operating.
Importantly, a company does not need to have completely run out of money before SBR becomes available.
For example, a business may still be trading and generating revenue but be falling behind on ATO obligations and supplier payments. In those circumstances, the company may be likely to become insolvent even though it remains operational.
This requirement exists because SBR is intended to help financially distressed businesses restructure their debts before the situation becomes irreparable.
3. Total Liabilities Must Not Exceed $1 Million
To access Small Business Restructuring, the company’s total liabilities must not exceed $1 million on the day the SBR Practitioner is appointed.
This threshold is intended to ensure that SBR remains a restructuring option for small businesses rather than larger corporate entities.
When assessing eligibility, directors should consider all company liabilities, not just overdue debts. Depending on the circumstances, this may include:
- ATO liabilities,
- Trade creditors,
- Loans and finance facilities,
- Employee-related obligations,
- Lease liabilities, and
- Other company debts.
Directors should not assume they fall under the threshold without first reviewing the company’s financial position.
If the company is close to the $1 million limit, professional advice should be obtained before proceeding, as eligibility is determined at the time the practitioner is appointed.
4. Employee Entitlements Must Be Paid
Before a restructuring plan can be proposed, employee entitlements that are due and payable must generally be paid.
This requirement is designed to ensure employees are protected before creditors are asked to vote on a restructuring proposal.
Depending on the circumstances, this may include:
- Outstanding wages,
- Superannuation contributions,
- Annual leave entitlements,
- Long service leave entitlements, and
- Other employee-related obligations that have fallen due.
Unless those entitlements are brought up to date, the company may be unable to proceed with SBR.
In practice, addressing employee entitlements is often one of the final steps before a restructuring plan is put to creditors.
5. Tax Lodgements Must Be Up to Date
A company does not need to pay all of its tax debts before entering Small Business Restructuring.
However, it must generally have its tax lodgements up to date before a restructuring plan can be proposed.
This is an important distinction that many directors misunderstand.
The ATO recognises that companies entering SBR often have significant tax debts. The issue is not whether those debts have been paid, but whether the company’s reporting obligations have been met.
Depending on the circumstances, directors may need to ensure that:
- Business Activity Statements (BAS) have been lodged,
- GST reporting is up to date,
- PAYG withholding obligations have been reported, and
- Other required tax returns and documents have been submitted.
This requirement helps ensure creditors are voting on a restructuring proposal based on accurate and complete financial information.
6. Prior SBR and Simplified Liquidation Restrictions
The legislation contains restrictions designed to prevent companies and directors from repeatedly using Small Business Restructuring or the simplified liquidation process.
Generally, a company may not be eligible if:
- It has undergone SBR within the previous seven years, or
- It has been subject to the simplified liquidation process within the previous seven years.
Restrictions may also apply where a current or recent director has been involved with another company that has recently used one of these processes.
These rules are intended to ensure that SBR is used as a genuine restructuring tool rather than a process that can be repeatedly relied upon whenever financial difficulties arise.
There are some exceptions in limited circumstances, particularly where related companies are involved, but eligibility should be assessed carefully before proceeding.
If there is any uncertainty about a company’s restructuring history or the history of its directors, this issue should be reviewed with a restructuring practitioner at an early stage.
Common Reasons Companies Are Not Eligible for SBR
Many companies that would otherwise benefit from Small Business Restructuring discover they are unable to proceed because one or more eligibility requirements have not been satisfied.
Some of the most common reasons include:
- Total liabilities exceeding the $1 million threshold,
- Outstanding employee entitlements,
- Unlodged BAS statements or tax returns,
- Previous use of SBR or simplified liquidation within the restricted period, or
- Operating through a structure that is not eligible for SBR.
Not every eligibility issue is permanent.
For example, a company may be able to complete outstanding tax lodgements or bring employee entitlements up to date before proceeding with the restructuring process.
Therefore directors should not assume beforehand that SBR is unavailable without first obtaining advice and reviewing the company’s circumstances.
Can a Company Become Eligible Later?
Sometimes, yes.
A company that is not currently eligible for Small Business Restructuring may be able to become eligible if certain issues are addressed before a restructuring practitioner is appointed.
Common examples include:
- Completing outstanding tax lodgements,
- Paying employee entitlements that are due and payable,
- Correcting financial records, or
- Clarifying the company’s liability position.
However, some issues may be more difficult to overcome.
For example, if the company’s liabilities exceed the $1 million threshold, SBR may not be available unless the position changes before eligibility is assessed.
The key point is that directors should not automatically rule out SBR based on assumptions. A proper eligibility review can often identify what steps, if any, need to be taken before the company can proceed.
SBR Eligibility Checklist
Before exploring Small Business Restructuring further, directors should consider whether the company satisfies the key eligibility requirements.
Your company may be eligible for SBR if:
- It is incorporated and registered as a company.
- It is insolvent or likely to become insolvent.
- Total liabilities do not exceed $1 million.
- Employee entitlements that are due and payable have been paid.
- Required tax lodgements have been completed.
- The company has not recently used SBR or simplified liquidation in a way that prevents eligibility.
- The directors satisfy the relevant eligibility requirements.
If you are unsure about any of these criteria, it is worth obtaining advice before ruling SBR in or out.
Is Your Company Eligible for Small Business Restructuring?
Eligibility is one of the first questions directors should answer before considering Small Business Restructuring.
While the process is designed to help viable small businesses deal with financial distress, access is limited to companies that satisfy specific legal requirements. These include the liability threshold, employee entitlement obligations, tax lodgement requirements and restrictions relating to previous use of restructuring processes.
For directors facing creditor pressure, ATO debt or ongoing cash flow challenges, understanding eligibility early can help determine whether SBR is a realistic restructuring option.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, consultation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
Who can use Small Business Restructuring?
Small Business Restructuring is available to eligible incorporated companies that are insolvent or likely to become insolvent and meet the legislative eligibility requirements.
This includes satisfying the liability threshold, employee entitlement requirements, tax lodgement requirements and restrictions relating to prior use of restructuring processes.
Does my company need to be insolvent to qualify for SBR?
Yes — the company must either be insolvent or likely to become insolvent in order to qualify for small business restructuring.
SBR is designed to help businesses that are experiencing genuine financial distress and need a formal mechanism to restructure their debts.
Does the company have to be incorporated for SBR?
Yes. SBR is only available to companies. Sole traders, partnerships and trusts cannot directly access the process unless they operate through an incorporated company structure.
What is the SBR liability threshold?
At the time of writing, a company’s total liabilities must not exceed $1 million on the day the Small Business Restructuring Practitioner is appointed.
Directors should seek advice if they are close to the threshold, as eligibility is assessed based on the company’s total liabilities.
Do tax debts need to be paid before SBR?
No.One of the most common misconceptions about SBR is that all tax debts must be paid before a restructuring plan can be proposed.
In reality, tax debts can often form part of the restructuring proposal. What matters is that the company’s tax lodgements are generally up to date.
Do tax lodgements need to be completed before SBR?
Yes. Before a restructuring plan can be proposed, the company must generally have lodged its required tax returns, BAS statements and other taxation documents.
Many companies become eligible for SBR simply by bringing their lodgement obligations up to date.
What employee entitlements must be paid before SBR?
Employee entitlements that are due and payable generally need to be paid before a restructuring plan can be proposed.
Depending on the circumstances, this may include:
- Wages,
- Superannuation,
- Annual leave,
- Long service leave, and
- Other employee-related entitlements that have fallen due.
Can a sole trader use Small Business Restructuring?
No. SBR is only available to incorporated companies.
Sole traders may need to consider other restructuring or insolvency options depending on their circumstances.
What if my company exceeds the $1 million threshold?
If total liabilities exceed the applicable threshold at the time eligibility is assessed, the company may not qualify for Small Business Restructuring.
In those circumstances, directors may need to explore alternative restructuring or insolvency options.
Can I use SBR if my company previously used it?
Potentially not.
Restrictions generally apply where the company, or certain directors, have previously used Small Business Restructuring or the simplified liquidation process within the prescribed period.
Eligibility should be assessed carefully where there is any prior restructuring history.
Can my company become eligible later?
Sometimes.
A company that is currently ineligible may become eligible if issues such as outstanding tax lodgements or unpaid employee entitlements are addressed before a restructuring practitioner is appointed.
However, some eligibility barriers may not be capable of being resolved.
What happens if my company is not eligible for SBR?
Being ineligible for SBR does not necessarily mean the business has no options.
Depending on the circumstances, directors may wish to explore alternatives such as:
- Informal creditor negotiations,
- ATO payment arrangements,
- Safe Harbour,
- Voluntary administration, or
- Liquidation.
The appropriate option will depend on the company’s financial position, creditor pressure and future viability.
