Your profit and loss statement is looking grim. The ATO’s sent another Director Penalty Notice. That bank covenant you signed three years ago? You’re about to breach it. And the supplier who’s been carrying you for six months just put you on cash terms only.

Sound familiar? You’re far from alone. Over 13,400 Australian companies entered external administration in the financial year to May 2025, a 34% jump from the previous year. Construction and hospitality are copping it worst, but no sector’s immune. 

Small Business Restructuring

Here’s where things get interesting for Aussie businesses. Since January 2021, there’s been a game-changing option available that most business owners still don’t know exists: Small Business Restructuring (SBR).

This process was specifically designed as debt restructuring advisory but still fundamentally viable. And it’s absolutely exploding in popularity. SBR appointments jumped sevenfold in three years, from 295 appointments in the 2023 financial year to 2,206 by March 2025. Between July 2022 and December 2024, there were 3,388 SBR appointments nationwide.

The beauty of SBR? Directors stay in control. Unlike traditional voluntary administration where you hand the keys to an external administrator, you remain at the wheel while working with a registered Small Business Restructuring Practitioner (SBRP).

How Small Business Restructuring Works

To qualify for SBR, your company needs to tick a few boxes:

• Total liabilities under $1 million (excluding employee entitlements)
• You’re an incorporated company (Pty Ltd), not a sole trader
• Employee entitlements and super are current
• You haven’t done this in the past seven years

If you’re eligible, the process is remarkably streamlined. You appoint an SBRP who helps you develop a restructuring plan within 20 business days. That plan gets sent to creditors, who have 15 business days to vote. You need more than 50% approval by value, and you’re good to go.

The results? Businesses are successfully negotiating debt “haircuts” of 65% to 91%. Some companies have reduced total debts by $114,000 to $853,000 through this process. Recent plans saw creditors accepting anywhere from 9 cents to 35 cents in the dollar—and walking away satisfied it was better than liquidation.

According to ASIC data, 79% of plans put forward between July and December 2024 were accepted by creditors. Even better: 93% of companies that fulfilled their plans before March 2025 remain trading today.

The ATO as Creditor: What You Need to Know

Here’s the reality for most Australian businesses in financial trouble: the ATO is your biggest creditor. Tax office debt appears in 89% of SBR cases, often representing 50-100% of total claims.

And the Tax Office has gotten aggressive. After years of pandemic-era leniency, they’re back to business-as-usual debt recovery, and then some. The ATO is actively pursuing $52.8 billion in collectible tax debt from businesses across Australia. Director Penalty Notices are flying out faster than ever, with a strict 21-day window to act before directors become personally liable.

But here’s the surprising bit: the ATO actively supports the SBR process. They engage early with restructuring practitioners, provide feedback on draft proposals, and regularly accept significantly reduced payments. Why? Because they’d rather get 20 cents in the dollar from a business that keeps trading than 5 cents from a liquidation.

Voluntary Administration

For companies that don’t meet SBR eligibility or need more comprehensive restructuring, Voluntary Administration (VA) remains the main option. 

VA provides a statutory moratorium, typically four to six weeks, where creditors can’t take action against you. It’s comprehensive, tested, and has been successfully used for everything from micro-businesses to Australia’s largest corporate restructurings.

The downside? For businesses with complex operations or multiple stakeholders, VA might be necessary. For smaller operators, it’s often overkill.

Debt-for-Equity Swaps: When Creditors Become Partners

We’re seeing creative restructuring solutions emerge across the Australian market. Through 2024 and 2025, private capital funds took control of Accolade Wines through a debt-for-equity swap, purchasing existing debt at a discount then converting it to ownership. They then merged Accolade with Pernod Ricard’s wine business, supported by $700 million in debt refinancing from an Australian bank.

These deals work particularly well when you’ve got creditors who see long-term value. They trade debt they might never recover for equity in a restructured business. Your debt load drops immediately, and everyone’s incentives align around making the business successful.

Private Credit

Traditional banks have pulled back from riskier lending, constrained by regulation and the uncertain economic environment. Into that gap have stepped private credit funds and alternative lenders.

These non-bank lenders are increasingly financing restructurings, providing bridge loans, and participating in distressed asset purchases. They’re more flexible than banks and willing to take on higher risk, but they demand higher returns. For businesses with limited options, though, expensive capital beats no capital.

We saw this with the Healthscope collapse. When McGrathNicol was appointed receiver to Australia’s second-largest private hospital operator (owing $1.7 billion to lenders), private capital funds immediately circled, looking for distressed debt opportunities.

The Smart Play: Act Early

Here’s the most important thing to understand about debt restructuring in Australia: your options multiply when you’re proactive. The moment you’re three months behind on the ATO, missing supplier payments, or approaching a covenant breach—that’s when you need to act.

Companies that wait until they’ve received a winding-up petition or a lockdown Director Penalty Notice have almost no leverage left. The ATO won’t negotiate once they’ve taken enforcement action. Banks won’t extend facilities when you’re already in default.

But companies that engage early, while they’re still trading profitably but can see the storm coming, can structure deals that genuinely work. They can explore SBR before the debt exceeds $1 million. They can approach major creditors proactively rather than defensively.

Debt restructuring advisory experts say that watch your warning signs religiously. If you’re using supplier credit to cover operating expenses, that’s a red flag. If ATO debt is building and you’re avoiding the phone calls, that’s another. If you’re making interest payments but not touching principal, you’re in trouble.