The Small Business Restructuring (SBR) framework has quickly become one of the most widely used mechanisms available to financially stressed SMEs. From only a handful of appointments in FY21, uptake has expanded to almost 3,000 SBR appointments in FY25, now representing a substantial proportion of all formal insolvency appointments across Australia.
As the use of SBR has grown, so has the Australian Taxation Office’s level of scrutiny. Given that the ATO is often the largest creditor in an SBR, its vote can determine whether a restructuring plan proceeds. Recent practitioner experience shows that the ATO’s expectations and approach are now clearer, more structured, and more rigorous than when the regime commenced.
This article sets out the key requirements the ATO expects companies and restructuring practitioners to meet—before a plan is issued, in the plan itself, and during the process of seeking ATO support.
1. Employee Entitlements Must Be Paid in Full
Before a restructuring practitioner can issue a plan, all employee entitlements that are due and payable must be brought up to date. This includes:
- Superannuation contributions
- Superannuation Guarantee Charge (SGC) where superannuation was paid late
Where an SGC liability exists, companies must lodge all SGC statements and pay the SGC before a plan is issued.
For excluded employees (directors and related parties), any SGC amount above the legislated cap remains a company liability and must be disclosed within the plan itself.
The position is clear – employees cannot be compromised while tax debts are being negotiated.
2. Lodgments Must Be Up to Date — or “Substantially Complying”
A company entering SBR must ensure all taxation lodgments are:
- Fully lodged, or
- Substantially complying, meaning reasonable steps were taken to lodge and any delays are due to external factors.
Where this requirement is not met, the SBR plan is taken not to have been issued, and the process automatically terminates. This remains one of the most common technical failures observed in the regime.
This expectation underscores the principle that a business cannot seek compromise while failing to meet basic compliance obligations.
3. What the ATO Looks For When Deciding Whether to Support a Plan
While each plan is considered on its merits, the ATO commonly assesses proposals against the following criteria:
Best possible return
The offer must represent the maximum realistic return the business can produce, supported by evidence, financial forecasts, and liquidation comparisons.
Commercially realistic timeframes
Payment timeframes need to be achievable and appropriately aligned with the company’s ability to generate sustainable cashflow.
Public interest considerations
The ATO is unlikely to support a plan where there are unresolved tax issues, governance concerns, or behaviour suggesting misuse of the SBR regime.
Finality of the plan
Once a plan is issued to creditors, it cannot be amended. All elements must be complete, verifiable, and final before the plan is released.
4. Why the ATO Commonly Rejects Plans
Practitioner experience shows that ATO rejections often arise from:
a) Unrepaid director or related-party loan accounts
Where directors have taken drawings or loans that remain unpaid, the ATO is hesitant to agree to a proposal that shifts loss to creditors while directors and related parties retain benefit.
b) Poor tax compliance history
Repeated lodgment failures, unrectified SGC issues, and systemic non-payment significantly reduce the likelihood of support.
c) Preferential payments
Directors or selected creditors being paid ahead of statutory obligations raises public-interest concerns and often results in a rejection of a proposal.
5. Documentation the ATO Expects
For the ATO to meaningfully assess a plan, it needs to be provided:
- Three years of financial statements
- Year-to-date performance results
- A detailed asset and liability breakdown
- Liquidation scenario analysis
- Loan account reconciliations (including related-party positions)
- Cash-flow forecasts with clear assumptions
- Written evidence of third-party funding commitments
- Details of expected R&D tax offsets (if applicable)
Comprehensive documentation generally leads to faster assessment and more predictable outcomes.
6. Submitting Draft Plans for ATO Feedback
Where the ATO is a significant creditor, early engagement can avoid unnecessary rejections.
To maximise the chance of success, it is recommended that draft plans and supporting documents are submitted at least five business days before issuance
Conclusion
The ATO’s role in the SBR regime continues to evolve. As SBR’s are now a routine restructuring option, companies and advisers must be prepared to meet higher standards of compliance, documentation, and governance.
For businesses, satisfying these requirements improves the likelihood of obtaining creditor support and emerging from the restructuring process with a sustainable future.
A clear understanding of the ATO’s expectations is essential to preparing a rigorous restructuring plans.
Cathro & Partners works closely with directors, lenders, and SMEs navigating financial distress. Early advice remains critical to preserving options and positioning a restructuring plan for success.
