Small Business Restructuring has become a key tool for Australian businesses facing financial pressure. When used properly, it can help a viable company compromise its debts, continue trading, and work toward recovery rather than closure.
But as Liam Bailey from O’Brien Palmer explains, not every Small Business Restructure succeeds.
In many cases, the deciding factor is simple: whether the ATO supports it.
In a large number of Small Business Restructures, the ATO is either the only major creditor or holds such a significant portion of the company’s debt that its vote can determine the outcome. If the ATO supports the proposal, the restructure has a strong chance of being accepted. If the ATO votes against it, the restructure will often fail.
So why does the ATO say no?
According to Liam, one of the biggest issues is a lack of engagement before the restructure begins. If directors have made no real attempt to contact the ATO, discuss their tax debt, lodge outstanding returns, or make genuine efforts to deal with growing liabilities, the ATO may take the view that the restructure is not being used in good faith.
From the ATO’s perspective, a company that has ignored tax obligations for an extended period may appear to have been funding its business by not paying tax. If the first meaningful contact the ATO receives is notice of a Small Business Restructuring Practitioner being appointed, that can create concern that the process is being used as a shortcut to wipe away debt.
That is not what Small Business Restructuring is designed for.
“SBR is intended to deal with genuine financial distress and historic solvency issues in businesses that still have a viable future. It is not a “get out of jail free” card for unpaid tax.”
Liam also highlights another issue that can cause serious problems: director loan accounts.
Where directors have drawn funds from the company and those amounts have been recorded through loan accounts, the ATO will look closely at whether those drawings have been treated properly. If the loan account has been used in a way that appears to avoid income tax or disguise personal expenditure, the ATO is unlikely to support a restructure that simply writes off the company’s debts while leaving those issues unresolved.
The conduct of directors during the restructure also matters.
Under the SBR process, directors remain in control of the company’s day-to-day trading. But that does not mean they can do whatever they like. Major transactions, asset sales, or decisions outside the ordinary course of business require the consent of the Small Business Restructuring Practitioner.
If directors sell business assets, hand back premises, or effectively shut down the business without approval, it can undermine the purpose of the restructure altogether. The process is designed to help save a business, not to provide cover while the business is dismantled.
The key message from Liam is clear: good faith matters.
A successful Small Business Restructure depends on transparency, proper records, realistic proposals, and early engagement. Directors need to show that they have tried to deal with their obligations, that the business has a genuine future, and that the proposal offers creditors a better outcome than liquidation.
Small Business Restructuring remains a valuable option for the right business. At O’Brien Palmer, Liam and the team have helped many directors use the process successfully to stabilise their position, obtain debt relief, and keep trading.
But success depends on getting the process right.
If your business is struggling with tax debt, creditor pressure, or cash flow problems, the best time to seek advice is before the situation becomes urgent. Early advice gives you more options, more control, and a better chance of achieving a workable outcome.
For confidential advice about whether Small Business Restructuring may be suitable for your business, contact Liam Bailey and the team at O’Brien Palmer.
Call: (61) 2 9232 3322
Email: obp1@obp.com.au
Visit: https://obp.com.au
Resources
RESOURCE PAGE:
BLOG POSTS & VIDEOS:
- https://obp.com.au/2025/06/17/sbr2025/
- https://obp.com.au/2024/09/18/the-small-business-restructuring-process-update/
- https://obp.com.au/2023/09/28/small-business-restructuring/
Download our fact sheet on the SBR Process.
SBR SUCCESS WEBSITE:
https://sbrsuccess.com.au/practitioners/bailey-liam-thomas-492243