Small Business Restructuring in Australia: A Comprehensive Guide

Small business restructuring involves making strategic legal, financial and operational changes to improve your company’s viability, competitiveness and long-term success.

Whether you’re facing cash-flow pressures or proactively planning growth, a clear, structured approach helps you adapt to market shifts, unlock new opportunities and safeguard stakeholder interests.

Quick Summary

• What It Means: Reorganising your business’s legal structure, debt profile, operations or resources to improve cash flow, reduce risk and position for growth.
• Why It Matters: Early intervention can preserve value, protect your personal and business assets, and maintain stakeholder confidence.
• Informal vs Formal: Informal restructures include entity conversions, payment term renegotiations and process improvements. Formal options under the Corporations Act include Voluntary Administration (VA) and the Small Business Restructuring (SBR) process.
• Core Steps: 1) Assess financial health; 2) Seek professional advice; 3) Develop a comprehensive plan; 4) Implement legal and operational changes; 5) Negotiate with stakeholders; 6) Execute and monitor.
• Key Benefits: Improved cash flow, reduced liabilities, enhanced profitability, protected equity and stronger governance.
• Government Support: ASIC’s insolvency reforms, ATO payment plans, SBR roll-over for tax-neutral asset transfers, and services from small business commissioners.

What Is Small Business Restructuring?

Small business restructuring—or small business restructure—is about reshaping how your company operates to address current challenges or capture future opportunities.

Reactive Restructuring

When a company struggles to meet its obligations—overdue invoices, mounting creditor demands or negative trading results—restructuring can be a last line of defence to avoid insolvency. Reactive measures include informal debt workouts, asset sales or entering a formal process like VA or SBR to impose a moratorium on creditor actions.

Proactive Restructuring

Forward-thinking business owners use restructuring to scale effectively or streamline complexity. For example, converting from a sole trader to a proprietary limited company can unlock investor funding, improve tax planning and limit personal liability. Proactive projects often involve process reengineering, digital transformation and strategic refinancing.

Why Consider a Small Business Restructure?

1. Improve Cash Flow

• Negotiate extended payment terms with suppliers.
• Secure refinancing or restructure existing loans.
• Spread large tax or superannuation liabilities over installments.

2. Enhance Profitability

• Cut non-essential overheads and lease or asset costs.
• Focus on higher-margin products or services.
• Adopt technology to automate routine tasks.

3. Protect Assets & Equity

• Change legal structure to limit personal guarantees.
• Use trusts or holding companies for asset protection.
• Prepare for sale or succession by separating operating and asset-holding entities.

4. Comply with Regulations

• Ensure employee entitlements and tax lodgements are current.
• Meet ASIC reporting and governance requirements.
• Reduce reputational risk by demonstrating proactive management.

Steps in the Restructuring Process

1. Assess Your Situation

• Perform a thorough cash-flow forecast and stress-test scenarios.
• Identify critical warning signs: ongoing trading losses, missed supplier or ATO payments, bank overdraft breaches.
• Review existing corporate structures, group relationships and personal exposures.

2. Seek Professional Advice

• Engage an accountant with restructuring expertise to analyse financial data.
• Consult a registered liquidator or restructuring practitioner for formal options.
• Discuss with your legal adviser to understand director duties, safe-harbour defences and statutory obligations.

3. Develop a Comprehensive Plan

• Operational changes: streamline workflows, renegotiate leases, outsource non-core functions.
• Financial solutions: debt negotiation, refinancing, equity injections or shareholder loans.
• Legal measures: entity transfers, roll-over relief, appointment of external administrators if required.
• Define clear objectives, timelines and performance indicators (e.g. reduce monthly outflows by 20%).

4. Implement Legal & Structural Changes

• Convert sole trader or partnership into a company or trust for liability protection.
• Ensure all BAS, PAYG, superannuation and payroll obligations are current to qualify for formal processes.
• Lodge required documents with ASIC for SBR or appoint an administrator in VA proceedings.

5. Negotiate with Stakeholders

• Prepare a concise proposal outlining repayment plans and business viability improvements.
• Communicate openly with banks, landlords, major creditors and employees to secure support.
• Use formal votes (under VA or SBR) to bind creditors to a single compromise plan.

6. Execute & Monitor

• Finalise a Deed of Company Arrangement (DOCA) or SBR plan and commence repayments.
• Establish regular financial reporting to track compliance with agreed milestones.
• Adjust strategies promptly if performance falls short, maintaining open dialogue with the appointed practitioner.

Formal Restructuring Options

Voluntary Administration (VA)

VA appoints an independent administrator who takes control for up to 28 days (extendable), providing a moratorium on unsecured creditor actions. Creditors then vote on a DOCA, returning control to directors or moving to liquidation. VA suits companies with complex creditor arrangements but may involve significant fees and potential reputational impact.

Small Business Restructuring (SBR) Process

Effective from 1 January 2021, SBR is designed for companies with total liabilities under $1 million. Highlights include:

• Debtor-in-Possession: Directors retain control under practitioner oversight.
• Speed & Cost: The process often concludes within five weeks, with lower professional fees than VA.
• Creditor Voting: A heads-of-agreement approach whereby creditors vote by value; approved plans allow debts to be restructured over up to three years and residual balances written off.

Small Business Restructuring Strategies

Debt Workouts & Compromises

• Informal deeds of release or payment plans with key suppliers.
• Formal DOCAs or SBR compromises to reset liabilities.

Operational Efficiencies

• Lean process improvements, digitisation of manual tasks and renegotiation of service contracts.
• Outsource non-core activities such as payroll or IT support.

Entity Reorganisation

• Tax-neutral small-business rollover relief to transfer assets between entities.
• Consolidate multiple entities to reduce compliance costs.

Tax & Grant Utilisation

• Leverage R&D tax incentives or instant asset write-off schemes.
• Apply for government grants or relief packages targeting small businesses.

Growth & Diversification

• Attract external capital through share issues or private equity partnerships.
• Pursue strategic mergers, joint ventures or franchise models.

Industry-Specific Considerations

• Retail: Implement clearance strategies for slow‑moving inventory, renegotiate lease terms and invest in omnichannel capabilities.
• Hospitality: Optimise labour scheduling, simplify menu offerings and engage with tourism bodies for promotional support.
• Construction: Vet project profitability, protect builder’s licences in formal proceedings and manage subcontractor claims.
• Professional Services: Segregate high‑risk activities into separate entities, actively manage work‑in‑progress (WIP) and maintain client communication to preserve goodwill.

Government Support & Tax Concessions

• ASIC Insolvency Reforms: Streamlined SBR and practitioner registration, with publicly accessible registers for transparency.
• ATO Assistance: Flexible payment plans for tax and super, plus small-business restructure roll-over relief for entities with turnovers under $10 million.
• Small Business Commissioners & ASBFEO: Free mediation, advisory services and case studies illustrating successful restructures.
• Grant Programs: Business.gov.au lists grants for innovation, digital adoption and skills training, which can support turnaround initiatives.

Common Pitfalls & How to Avoid Them

• Delayed Action: Waiting too long can erode value. Start assessments at first signs of stress.
• Insufficient Data: Poor forecasting or outdated records hamper effective planning. Maintain accurate, real-time financials.
• Overlooking Stakeholders: Failing to engage creditors or employees early can derail plans. Prioritise transparent communication.
• Ignoring Legal Duties: Directors must be mindful of insolvent‐trading rules; breach can lead to personal liabilities.

Case Study: Turning Debt into Opportunity

A Perth-based construction firm carrying $800 000 in liabilities faced repeated bank overdraft breaches. By engaging a registered practitioner for an SBR plan, the business:

1. Remediated outstanding BAS and super obligations within weeks.
2. Negotiated a three‑year repayment schedule for $300 000 of priority debts.
3. Wrote off the remaining balance under the SBR compromise.
4. Preserved its builder’s licence and retained key staff.
5. Secured new project contracts within six months, restoring positive cash flow and safeguarding over 25 local jobs.

FAQs

When should I consider a small business restructure?

Assess your position if you experience missed payments, cash‑flow gaps or creditor pressure. Early action widens your options.

What is the difference between VA and SBR?

VA places your company under external administration and can bind all unsecured creditors. SBR lets directors stay in control under a practitioner, with lower costs and faster timelines.

Can I use SBR more than once?

Each eligible company can use SBR once every seven years, provided all tax and super obligations are up to date.

How long does a restructure take?

Informal workouts can be negotiated in weeks. Formal VA processes run for about one to two months, while SBR plans typically finalise within five weeks.

What is the Small Business Restructure Rollover?

The ATO Small Business Restructure Rollover allows eligible small businesses with turnover under $10 million to transfer active assets between entities during a restructure without triggering capital gains tax or balancing adjustment events, enabling tax‑neutral asset transfers and smoother transitions. Learn all about this concession in our blog: What Is the Small Business Restructure Rollover?

Next Steps

Restructuring is a journey—start with a thorough assessment and expert advice. At M2 Corporate, we offer a complimentary initial consultation to map out the right pathway for your business.

Ready to strengthen your small business? Contact an M2 Corporate business advisor in Perth today to arrange a tailored restructure strategy and regain confidence in your business’s future.