we have answers.
Small Business Restructuring (SBR) was introduced as a powerful tool to help viable small businesses recover from financial distress, preserve jobs, and repay creditors. But recent guidance from the ATO and along with a clear shift in its voting behaviour signals a far tougher stance on approving SBR proposals.
We’ve seen first-hand that the ATO is no longer willing to accept poor proposals or overlook poor conduct. If your client is considering an SBR, understanding why the ATO may vote against a plan is critical to improving the likelihood of success.
Compliance Failures and Historical Behaviour
The ATO has made it clear: good intentions aren’t enough. Businesses must demonstrate ongoing, obligation-by-obligation compliance.
Key issues include:
- Poor compliance history: Repeated late or non-lodgments, or making little to no ATO payments in recent times, are serious red flags. The ATO wants to see proactive engagement, not avoidance.
- Director liability risks: Late BAS or SGC lodgments may trigger Director Penalty Notices — a personal liability risk for directors.
Learn more about DPN changes here.
Tip: Before lodging an SBR, ensure all ATO lodgments are up to date and demonstrate an effort to meet obligations, even when the business is in financial strain.
Unfair Conduct Towards Creditors
The ATO is particularly focused on proposals that appear to treat creditors and itself unfairly.
Red flags include:
- Preferential treatment: Payments made to directors or related parties ahead of the ATO may be seen as misconduct.
- Inappropriate director loans: If directors have taken money out of the business without plans to repay, the ATO will see this as poor governance.
- Low dividend offers: Proposals offering as little as 20–25 cents in the dollar may not gain support unless clearly justified by viability and fairness.
- Long repayment terms – Plan over a three-year period are not preferred.
Concerns Around Related Party Dealings
The ATO is increasingly critical of how directors and related parties conduct themselves during periods of financial distress.
Watch for:
- Director loans (including Div 7A accounts) increasing while tax debts mount.
- Large asset purchases made while ATO debts grow.
- Excluding or subordinating related party debts in a way that prioritises insiders over fair treatment of all creditors.
Even ASIC recently reminded directors that company money must be used in the best interests of the company and not for personal benefit (https://www.asic.gov.au/about-asic/news-centre/news-items/asic-reminds-small-business-directors-of-their-obligations-to-manage-company-money-and-assets-appropriately/)
Future Viability & Public Interest Considerations
The ATO isn’t just looking at the past. It’s also asking: Can this business stay viable and compliant after restructuring?
Expect scrutiny on:
- Whether future compliance with tax and super obligations is realistic.
- Whether the business model has genuinely changed or whether the plan is just a short-term workaround.
- Any signs that the business is trying to “game the system” to gain an unfair advantage over others.
A Word of Caution on Cheap Operators or Untrustworthy Insolvency Advisors
We’ve seen an increase in low-cost restructuring practitioners linked to unregulated and untrustworthy insolvency advisors. These operators often promise 100% success but deliver poor-quality advice, hidden fees, and dangerous outcomes.
Important: Only a person registered with ASIC as a registered liquidator can act as a restructuring practitioner. These professionals are regulated and insured unlike many pre-insolvency operators and untrustworthy insolvency advisors.
Bottom line: SBR is not a paperwork shuffle. It requires real behavioural and operational change. The process involves tough decisions and a skilled practitioner who can guide a business toward long-term viability.
What the ATO Is Looking for in an SBR Proposal
To increase the chances of ATO support, your SBR plan should demonstrate:
- Transparency with all creditors, including directors and related parties.
- Strong compliance history or a credible path to achieving it.
- A viable business model showing how the company will meet future commitments.
- No unfair treatment of creditors or misuse of company funds.
- Higher returns to creditors over shorter period of time.
Our Recent SBR Successes
We’ve already completed four successful SBRs in August alone — a testament to our team’s experience, rigour, and understanding of what both the ATO and businesses need to achieve a successful outcome.
We work collaboratively with business owners, accountants, and advisors to create practical and credible proposals that are focused on recovery, not just survival.
Client Testimonial – SBR in the Hospitality Sector
“We were referred to Rapsey Griffiths by our accountant to tackle a complex Small Business Restructure and were very fortunate with the team that led us through the process. The RG team are professional, detailed and pulled off a huge result for our company. We’d recommend them for any business requiring guidance in insolvency, restructuring or administration.”
Final Thoughts
The ATO has raised the bar on what it expects from SBR proposals. But for directors who are prepared to act responsibly and restructure with transparency, the SBR framework still offers a valuable second chance.
We specialise in navigating complex restructuring with a focus on compliance, clarity, and long-term success.
Thinking about restructuring?
If you have clients who could benefit from the SBR process, talk to us today to arrange a confidential consultation.