Lessons and Insights from My Panel on Small Business Restructures

By Travis Pullen, Director

Peter and I were recently invited to a conference in Bali with hosts Helm Advisory and GM Advisory. About 40 delegates attended the invitation-only event, forming a really eclectic group of liquidators, lawyers, business valuers, an insurance broker, a litigation funder, and others connected with the industry.

I must say that it was probably the most collaborative conference I’ve been on in recent times. Networking in that setting, sometimes poolside instead of in a boardroom, made for a more open exchange of ideas.

Looking Back on SBRs

I was invited to speak in the first keynote session, which was a panel discussion on Small Business Restructures. The regime has now been in place for about four years. Having completed close to 100 of these, I reflected on what has worked and what the pitfalls and red flags are when advising clients on whether an SBR plan will be successful.

A big focus of the discussion was the role of the Australian Taxation Office (ATO) which has been central to how these plans play out.

The Tax Office as Key Stakeholder

The Australian Taxation Office (ATO) is the largest creditor in about almost all SBRs, and is often the only creditor. Therefore, they nearly always hold the deciding vote. Over time, their approach has evolved:

They have become more educated and more involved in the process.
They now provide more detailed feedback and request more information, including cash flow forecasts.
They are scrutinising business viability more closely, asking whether there is even a point in allowing a company to continue.
They are paying closer attention to red flags, such as poor compliance history or large director loans.

This has led to more SBR plans being rejected than in the early days. At the same time, the average dividend paid out to the ATO is slowly increasing.

Trends in SBR Uptake

SBRs only really ramped up in the last two and a half years. For the first couple of years, they were relatively dormant. At their peak, SBRs made up about 30% of insolvency appointments. More recently, that figure has come down to around 20%.

There are a few reasons for this shift:

The rising rejection of plans by the Tax Office.
The realisation that SBRs are not a quick fix for all corporate issues.
Alternative options, such as traditional restructuring or liquidation, may sometimes be more appropriate.

I expect the numbers will eventually level out at around 20–25% of total insolvency appointments in the longer term.

B&T’s Experience with SBRs

At B&T Advisory, our overall success rate (ie the % of proposals that are accepted by Creditors) with SBRs is just under 90%, well above the industry average of around 70–75%. A key reason is that we are open and honest when advising clients. We don’t advertise SBRs as an easy way to “save 80% in tax.” Instead, we rely on experience to identify red flags and help clients shape realistic proposals.

Our average payout is about 25 cents in the dollar, and that figure is slowly rising. The old view of SBRs as paying 15–20 cents in the dollar and being “all good” is now very rare.

For me, the highlight of the Bali conference was the collaborative environment. In a relaxed setting, we were able to share experiences more openly, learn from each other, and build connections that continue into our work back home. Travis Pullen