Got company
tax debt
you can't pay?

We collect and present publicly available data published by the Australian Securities and Investments Commission (ASIC) on small business restructure (SBR) appointments and accepted SBR plans. The information is updated regularly and displayed consistently and can be sorted by practitioner name or SBR volume, helping company directors and their advisors make an informed choice using objective data.

For further information, ASIC's insolvency data is available at this link:Insolvency statistics | ASIC

The outcome depends largely on your company’s financial position and ATO compliance history, though in general, under an SBR:

• You keep control of the company and continue trading during the process.
• You pay an agreed portion of the unsecured debt, approved by creditors. ASIC data indicates the usual amount paid, including SBR plan fees, is 30% - 40% of the total liabilities.
• This reduced amount can be paid in one go on acceptance, on an interest-free payment plan (usually up to 2 years), or a combination of both.
• The remaining unsecured debt included in the plan is written off once the plan is completed.

The percentage repaid varies based on each company's financial position and ATO compliance history. It is therefore important to conduct a thorough assessment before your SBR starts to ensure your company can realistically afford the plan your SBR advisor reasonably believes your creditors will accept.

Creditors, including the ATO, assess various factors, including whether the proposal offers a better return than liquidation.

If the plan is not accepted, the SBR ends and the company remains in the director's control. However, the company will need to consider other formal options, such as liquidation, to deal with its debts.

Before proceeding, your SBR practitioner should assess your company's prospects of achieving SBR success and whether the business can meet the proposed repayments and remain viable.

An SBR can help a viable company deal with unmanageable debt, but there are important consequences to consider:

• Public record - The appointment is permanently recorded on the company's ASIC register and published on ASIC's Insolvency Notices website.
• Credit file and supplier accounts - A company credit file will show as in "external administration" until an SBR plan is finalised. It can then remain on your company credit file for up to 10 years, making it more difficult to obtain finance. Suppliers will usually stop credit, even if not owed a debt, and move you to cash on delivery or possibly stop supply.
• Licences and registrations - Certain licences and registrations may be affected. For NSW and Victorian builders in particular, home warranty insurance is lost for new projects until after an SBR plan is finalised.
• Eligibility and viability - You must be fully compliant and able to afford the proposed repayments. If the business is not viable, the plan is unlikely to be accepted.

An SBR is a formal insolvency process. You should weigh the commercial and regulatory impact before proceeding.

Here is how it works:

Appointment - The company appoints a registered liquidator as the small business restructuring practitioner. Directors stay in control of day-to-day trading, while the SBR practitioner oversees the process with creditors.

Proposal period - The company has up to 6 weeks (30 business days) to finalise and lodge a restructuring plan with creditors. During this time, the practitioner conducts investigations, helps formulate the restructuring plan and prepares a report to creditors to make an informed decision about whether to accept the proposed plan. The director trades the business and usually no payments are made to the debts owed at the SBR start date which are included in the SBR.

Creditor voting - Creditors have 3 weeks (15 business days) to vote on the plan. Voting is by dollar value of debt. More than 50% in value of unrelated voting creditors must approve the proposal for it to pass. Often the Australian Tax Office (ATO) is the largest, and sometimes only creditor, and therefore controls the vote.

If approved - The company makes the agreed repayments. Once all payments are completed, the unsecured debts included in the plan are written off.

If rejected - If creditors do not approve the plan, the company will need to consider other options, such as liquidation.

Timeframe - From appointment to creditor decision, the process typically runs for around 7 to 9 weeks.

No. Although people often want to include only their ATO debt in an SBR, all unsecured debts at the SBR start date are included under the law.

Common debts included are:

• ATO tax liabilities
• Trade suppliers
• Unsecured loans
• Director related unsecured loans
• Other unsecured creditors

Unsecured debts must not exceed $1 million under SBR eligibility criteria. Unsecured debts are those not registered on the Personal Property Securities Register (PPSR). A debt with a personal guarantee from the director does not mean it is secured.

Secured creditors, such as banks, and car and equipment financiers, are generally not included in the plan unless they agree.

Employee entitlements, most commonly superannuation, that is due and payable must be paid in full before or during the SBR. Super owed to directors and their relatives does not need to be paid and can be included in the plan.

It's also important to consider any contingent claims where the claim amount is unknown, disputed or subject to court action. Such claims can cause serious issues including making a company ineligible for SBR if liabilities exceed $1 million.

Debts which directors are personally liable for, either under personal guarantees or expired or lockdown ATO director penalty notices (DPNs), will need to be paid in full outside the SBR, or otherwise dealt with.

In practice, many SBRs are driven by ATO debt, as the ATO is often the largest unsecured creditor. However, the process will compromise all unsecured debts at the same time.

Before proceeding, your practitioner should thoroughly review all creditors to confirm which debts must be included.

An SBR is an option to avoid liability under a 21-day director penalty notice (DPN), but it does not automatically remove all director exposure.

If the DPN is a 21-day (non-lockdown) notice, placing the company into an SBR within 21 days can prevent the director from becoming personally liable for the company's BAS debts.

If the DPN is lockdown or has already expired as the 21 days has passed, the personal liability remains. An SBR does not extinguish that liability.

However, payments made under an approved SBR plan can reduce the underlying company tax debt. As that debt is reduced, the corresponding director penalty exposure is reduced as well.

Directors should seek advice promptly after receiving a DPN. Timing is critical, and once the short deadline passes, options become more limited.

Before starting an SBR it's essential to ensure the company meets the three core eligibility criteria - ATO lodgements are up-to-date, employee superannuation is paid in full and total unsecured liabilities are less than $1 million. But this isn't enough to determine if an SBR proposal will be accepted by the ATO or other creditors.

The ATO will thoroughly assess whether the SBR proposal is credible and appropriate when deciding whether to approve it. In practice, three key factors often influence the outcome:

Director loan accounts - If the balance sheet shows large unpaid director loan accounts (asset or negative liability balances), the ATO will question whether funds have been withdrawn from the company for the director's benefit while taxes remained unpaid. The ATO will query whether the loan can be repaid, and will otherwise be concerned that it's unfair to approve an SBR where the company has not paid its BAS debts and the director has effectively paid themselves tax-free drawings. Directors on the payroll is preferable. This can affect how the proposal is viewed and whether additional contributions are expected.

ATO compliance history - While many companies considering an SBR have had a period of payment difficulties, extended periods of ATO non-lodgement or non-payment can be a serious obstacle to SBR approval. A poor history does not automatically prevent approval, but it increases scrutiny and the need for an improved proposal offering a higher return and some, or all, of the SBR contribution paid on acceptance rather than a payment plan.

Business viability - The ATO will consider whether the business can afford the proposed SBR repayments while meeting ongoing tax obligations. Cashflow forecasts must be provided in support of payment plans and need to be credible. If the company cannot stay compliant going forward, the SBR plan may not be viable.

The ATO publishes guidance on how it approaches small business restructures. You can review its small business restructure information sheet on the ATO website for further detail at this link:Small business restructuring | Australian Taxation Office

Not always. An SBR is a formal insolvency appointment, which can have consequences for a business and it should not be taken lightly. Other options may be more suitable depending on your situation, including:

• Refinancing or introducing new capital
• Negotiating an ATO payment plan
• Improving profitability and managing cash flow internally
• A related party sale and restructure ("legal phoenix") to keep the business, followed by liquidation of the company to deal with its debts
• Closing the company if the business is not viable

Often a combination of business improvement measures, an SBR to reduce the debts and finance to pay out the SBR can provide the best experience for a company and its creditors.

An SBR is designed for insolvent but viable companies that cannot repay their debts in full, not for companies seeking an ATO debt reduction when they could otherwise pay.

A proper review should compare all available options before you proceed.