What happens if my Small Business Restructuring (SBR) proposal is denied by my creditors


by Jeff Shute12.02.24

Navigating the path of business restructuring can undoubtedly be a challenging and stressful process. Recognising the significance of this period and understanding the need for a customised strategy that ensures long-term resilience for your business is essential. In a recent report by the Australian Securities Investment Commission (ASIC) covering the period from January 2021 to June 2022, approximately 92% of Small Business Restructuring (SBR) plans nationwide were accepted. While this is an encouraging statistic, we acknowledge that in some instances, creditors may opt to decline the restructuring proposal based on a variety of factors.

Here at Shaw Gidley, our aim is to offer the utmost support, care, and advice for all of your restructuring purposes. While a majority of SBR plans are being accepted, our aim is to enhance this figure further, believing that every small business deserves the opportunity to breathe new life into their financial health and operational efficiency. However, it is essential to delve into the reasons behind the 8% disapproval rate and understand the subsequent steps if your restructuring proposal faces rejection.

Understanding the causes of disapproval

Upon submission of your SBR plan, creditors are granted a 15-business-day window to either accept or reject the plan proposal. During this phase, creditors carefully review the restructuring statement, assessing its accuracy and alignment with the company's proposal statement. For a plan to gain approval, it must secure the support of more than 50% of the voting creditors. If a plan is declined, it typically suggests that creditors perceived the plan does not provide a better return than they would expect under a liquidation scenario or that there was a sufficient lack of evidence to demonstrate the feasibility of the business following their proposed course of action.

Consequences during the restructuring process

Entering the SBR process triggers a moratorium on unsecured creditor claims, along with certain secured creditor claims. This temporary measure serves to alleviate short-term financial strain and helps provide an opportunity for the company to address their related issues. Throughout this period, unsecured creditors are barred from pursuing or enforcing their claims, including the enforcement of security interests in a company's assets and the recovery of company property.

Importantly, whilst creditors are barred from pursuing or enforcing claims during the SBR period, they often have reservations, understandably, in extending credit to the company during the SBR process. In this situation, it is common that the company may have to negotiate alternative arrangements such as cash on delivery terms or have alternative supply arrangements in place to enable ongoing trade. This can, and often, impacts of working capital requirements.  Ensuring the company has sufficient working capital to cover trade during the SBR process needs to be considered prior to undertaking the restructuring.

Next course of action

Shaw Gidley operates with a shared purpose; optimising your restructuring proposal not just to surmount immediate challenges but to craft solutions that extend beyond mere financial recovery. In the event of a declined restructuring proposal, we are here to help you assess the subsequent steps for your company. Rest assured, we will stand by your side, offering solutions that are irrespective of the hardships and challenges you may face.

Should your restructuring proposal decline, your company remains under your control; however, creditors regain the ability to enforce their rights, and you are no longer shielded from liability for insolvent trading. In such a scenario, one viable option is to consider entering liquidation. While acknowledging the inherent stress associated with the liquidation process, Shaw Gidley extends its expertise to provide market-leading solutions that address insolvency issues, be they personal, business, or company-related financial implications.

Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. 

Please contact our offices on 

(02) 4908 4444 or (02) 6580 0400.