What is SBR?

Navigating financial distress is a daunting challenge for a small business. However, the Small Business Restructuring (SBR) process, established under Part 5.3B of the Corporations Act 2001, provides a practical and structured solution for eligible businesses to address their financial difficulties while continuing to operate.

This article covers recent updates in the SBR space, insights into the Australian Taxation Office’s (ATO) approach, and practical case studies highlighting Levi Consulting’s expertise in helping small businesses through this process.

Recent Updates in the SBR Space

Australia’s economic tightening has made tax-related debts a significant contributor to insolvencies. On 6 November 2024, ATO Commissioner Rob Heferen indicated that there has been a slowing in ATO debt growth, but collectable debt remains at around $50 billion.

To address this mounting debt, the ATO has ramped up enforcement measures, including court wind-up applications and director penalty notices (DPN). However, the ATO has also demonstrated support for businesses opting to restructure under the SBR process, being a creditor in 99.5% of SBRs and approving about 91% of proposals. As of June 2024, there were 1,424 SBR appointments, being 13% of all insolvency appointments.

Insights from the ATO

The ATO has shown a collaborative and commercial approach to working with businesses that pursue SBR. ATO Commissioner Rob Heferen highlights that proposals that offer tangible benefits to creditors while demonstrating good faith and compliance are often supported.

Businesses in industries like construction, accommodation, food services, and personal services have particularly benefited from SBR, which allows them to retain control while negotiating a sustainable path forward.

How the SBR Process Works

The SBR process is designed for businesses with liabilities under $1 million and a commitment to compliance. Here’s how it works:

1. Eligibility Check
   • Liabilities must be less than $1 million.
   • Superannuation and employee payments must be up to date or rectified promptly.
   • Tax lodgements must be current or addressed.
2. Proposing the Plan
   Businesses work with a Small Business Restructuring Practitioner (SBRP) to prepare a restructuring plan, which outlines repayment terms and demonstrates why the proposal offers creditors better outcomes than liquidation.
3. Creditor Voting
   Creditors, including the ATO, review the plan and vote. A majority in value must approve for the plan to proceed.
4. Operational Continuity
   The business continues trading under director control throughout the process, which typically concludes within two months.

Case Study: A Small Café’s Restructuring Journey

A café facing $200,000 in liabilities, including $180,000 in unpaid taxes, opted for SBR. After meeting the eligibility requirements, it proposed a $30,000 repayment plan, offering creditors 15 cents in the dollar.

The plan was supported by creditors, including the ATO, who recognised the better recovery rate compared to liquidation. Once the plan was executed, the café’s remaining debts were extinguished, allowing the business to stabilise and continue trading.

How Levi Consulting Can Help

With extensive experience in insolvency and restructuring, Levi Consulting offers tailored solutions for small businesses considering SBR. David Levi, a Registered Liquidator, will prepare and present a compelling restructuring plan, and liaise with creditors, including the ATO.

Our track record includes assisting businesses across diverse sectors to achieve successful outcomes through SBR, enabling them to focus on growth and recovery. Contact David Levi on 0418 602 466 for a confidential discussion on how we can help you navigate this process successfully.