The Federal Government had recently announced a new small business restructuring process to help small insolvent companies avoid liquidation. The new restructuring process will allow for the cost effective restructuring of business and settlement of business debts with less interference from an external administrator.

It is expected that the proposed regime will be available to eligible businesses from January 2021. We examine the eligibility criteria and how the process will work:


While the full details of eligibility have yet to be ironed out, the government has announced the following requirements:

  • It will apply to companies only and not sole traders or partnerships;
  • Companies must have less than $1 million in debts;
  • All outstanding employee entitlements including superannuation must have been paid prior to commencing the process; and
  • All tax lodgements must be up to date.

Simplified Process

Under the proposed simplified process, a business will first engage an insolvency practitioner to assist in formulating a restructuring plan. This will be a proposal to creditors, including the ATO to settle their debts.

The company will officially appoint the insolvency practitioner as a small business restructuring practitioner (SBRP) once preliminary discussions have been held. Upon the appointment:

  • Unsecured and some secured creditors are barred from taking recovery action against the company;
  • Creditors cannot enforce personal guarantees against directors and their relatives; and
  • Creditors will not be able to rely on clauses in contracts allowing them to terminate agreements, such as provisions allowing a landlord to terminate a lease.

The SBRP will have 20 business days to present the company’s restructuring plan and any proposal for debt settlements to its creditors for a vote. Creditors will then vote on the on the plan and proposal.

Importantly, directors or owners of the business continue to retain control of the business and are allowed to continue trading throughout the process, allowing for a less disruptive restructuring process. This is in contrast with other external administration which usually suspends directors’ powers once an external administrator is appointed.

If the plan and proposal are approved, the company will be able to continue trading and the SBRP will administer the plan. For the proposal to be accepted, the majority of the business’ unrelated creditors in value must vote for it.

If the plan is not approved, the process ends, and the business owners or directors can decide whether to resort to any other types of formal insolvency appointments such as voluntary administration or liquidation.

How Will this Help with ATO Debts

One of the major benefits of the small business restructuring processes is that it will help businesses with unmanageable tax debts compromise those debts for a lesser amount. ATO debts usually cannot be compromised apart from the ATO agreeing to reduce interest and penalties imposed.

We have for years been assisting clients negotiate payment arrangements and penalty and interest reduction with the ATO outside of formal appointments. Some of these examples can be found here, here and here. This new process will allow us to help businesses actually reduce their core tax debts and continue trading. An example of how the process may work is set out below:

Debts Owed by Company
Other Debts50,000
Total Debts250,000

The directors of the above company could (for example) put up $100,000 to cover the costs of the process and settle its debts. If the directors’ proposal is accepted then the company will be able to continue trading without the burden of historical debt.

Contact Us For Assistance

While its implementation isn’t until January 2021, it is crucial that businesses act now to take advantage of the process. As mentioned above, you will first need to engage in an insolvency practitioner to formulate a plan for your business. This may take some time.

Our team, who is led by registered liquidators and are senior members of the Australian Restructuring Insolvency and Turnaround Association (ARITA), will be able to assist you in recalibrating your business. So, if you think your business may be insolvent and it looking at restructuring it, contact us at TAX DEBT SOLVED for a free, no-obligation consultation.



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Tax Debt Solved
GPO Box 691
Brisbane Qld 4001


Fax:  07 3221 8885
Phone: 07 3221 0055

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