Running a small business in Australia is no easy feat. From fluctuating markets to unexpected cash flow problems, even the most resilient business owners may explore restructuring as a path to survival. Introduced in January 2021, the Small Business Restructuring (SBR) framework offers struggling businesses a way to manage debts while remaining in control of operations.
However, the legal intricacies of this process should not be underestimated. If mishandled, these issues can lead to more serious outcomes, including liquidation or director liability. In this blog post, we’ll delve into the most common small business restructuring legal challenges, practical ways to manage them, and when to seek professional help.
What is Small Business Restructuring (SBR)?
SBR is a formal insolvency procedure under Australian law, designed specifically for small businesses with liabilities under $1 million. It allows business owners to work with a Small Business Restructuring Practitioner (SBRP) to propose a restructuring plan to creditors, all while continuing to trade.
This simplified process was implemented by the Australian Government to support viable businesses through temporary financial hardship. A detailed explanation of eligibility criteria, timelines, and procedural steps can be found on ASIC’s official website.
Avante Partners offers tailored guidance and comprehensive SBR services, supporting Australian SMEs through periods of financial stress with expert and hands-on assistance.
Legal Challenges Faced During SBR
1. Creditor Disputes and Plan Approval
Getting creditor approval is a central component of the SBR process. However, not all creditors will be keen to compromise on their outstanding debts. Disputes may arise regarding the terms of the proposed restructuring plan, particularly if creditors feel they’re not being treated fairly or equitably.
Solution: Communicate transparently with creditors from the outset. A restructuring practitioner can also help negotiate terms that improve your chances of plan acceptance.
2. Maintaining Compliance with the Corporations Act
The SBR process comes with strict statutory requirements under the Corporations Act 2001. Missing critical deadlines—such as the 20-business-day period to propose a restructuring plan—can render your application void or trigger voluntary administration.
Solution: Work with a qualified SBRP to manage documentation and filing schedules, and ensure the plan complies with all regulatory obligations.
3. Employee Entitlements and Legal Liabilities
Under Australian law, employee entitlements must be up to date before entering SBR. This includes wages, superannuation, and leave accruals. Overlooking this requirement can result in legal claims from current or former staff and may disqualify a business from entering restructuring.
Solution: Prioritise payments to employees and include any outstanding obligations in your restructuring plan.
4. Director Duties and Personal Exposure
One of the most significant legal risks for directors during restructuring is personal liability. Directors are legally bound to act in the best interests of the company and its creditors. Trading while insolvent, or failing to disclose relevant information to the SBRP, could result in civil or criminal penalties.
The Australian Government’s Business site outlines director obligations during financial distress.
Solution: Seek legal advice on your responsibilities before and during the restructuring process to avoid breaching your duties.
5. Commercial Leases and Contractual Obligations
Leases, supplier contracts, and other business agreements remain enforceable during SBR. Renegotiating or exiting these contracts without legal backing can lead to breach-of-contract claims.
Solution: Involve your legal counsel when amending or terminating agreements. Any changes to contracts should be documented in your restructuring plan, with creditor approval.
The Value of Professional Guidance
Legal complexities are one of the biggest reasons small businesses fail to complete the restructuring process successfully. A qualified restructuring expert can handle communication with creditors, meet legal filing obligations, and help you build a viable plan that aligns with both your business goals and regulatory requirements.
Avante Partners is a firm offering expert-led SBR services in Australia. Their team understands the local legal landscape and can work alongside your accountant or advisor to protect your business’s interests during a tough period.
Final Word: Legal Risks Are Manageable with the Right Help
Navigating the legal hurdles of small business restructuring doesn’t have to be overwhelming. By understanding the risks, planning strategically, and getting professional support, you can overcome challenges and position your business for a stronger future.
Time is critical—early intervention not only widens your options, but also protects you and your business from unnecessary legal exposure. Don’t wait until things spiral. Take action, seek advice, and stay informed.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal, financial, or professional advice. Please consult a qualified advisor for guidance specific to your situation
