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Small business restructuring proposals face greater ATO scrutiny, with insolvency firm urging directors to prepare thoroughly before seeking a second chance

Jirsch Sutherland

Key Facts:

• Small Business Restructuring (SBR) appointments accounted for less than 10 per cent of all new insolvency appointments in July 2026, with overall numbers falling to levels last seen in 2023, according to the latest Alares Credit Risk Insights.
• Business recovery firm Jirsch Sutherland is warning directors and accountants that SBR proposals require thorough preparation to withstand increased scrutiny from the ATO, which is often the largest creditor in such cases.
• The ATO has issued recent guidance outlining its expectations, covering tax and superannuation compliance, demonstrated business viability, related-party transactions, and the requirement that proposals represent a best-and-final offer from the outset.
• Jirsch Sutherland highlights successful SBR cases — including a national youth social enterprise and a Western Australian manufacturer — as examples of how thorough preparation and proactive ATO engagement can rescue viable businesses.

Small business owners considering a Small Business Restructuring (SBR) are being urged to get their financial affairs in order, with business recovery and insolvency firm Jirsch Sutherland warning directors and their accountants that proposals need to be thoroughly prepared to withstand increased ATO scrutiny.

Latest data from Alares Credit Risk Insights shows SBRs accounted for less than 10 per cent of all new insolvency appointments in July 2026, with overall appointment numbers falling back to levels last seen in 2023. The decline comes as the ATO – often the largest creditor in an SBR – has issued detailed new guidance to restructuring practitioners setting out what it expects from proposals and the factors that can influence its vote.

Jirsch Sutherland Partner and restructuring practitioner Emma Mos says more than five and a half years after SBR was introduced, the regime remains an excellent option for viable small businesses – but getting a plan through requires greater preparation.

“SBR remains a very good regime and we've seen first-hand the second chance it can give viable businesses,” says Mos. “But the days of relatively straightforward proposals are behind us. Creditors have much more experience with SBR now and the ATO has made it very clear what it expects.

“A better return than liquidation doesn't automatically mean a plan will be supported. The underlying business needs to be viable, the numbers need to stack up, and the proposal needs to withstand scrutiny.”

The ATO's latest guidance highlights several areas directors and accountants need to get right:
•    Tax & super compliance: Tax lodgements must be up to date or substantially compliant, while employee entitlements, including superannuation, need to be appropriately addressed before a plan is issued.  
•    Demonstrated viability: Financial statements and cash-flow forecasts must demonstrate the business can meet plan repayments alongside ongoing tax and super obligations.
•    Related-party scrutiny: Loans, repayments, related-entity transactions and major asset purchases made while tax debt accumulated can face close review.
•    Best-and-final offer: The plan should represent the company’s best possible offer from day one, as the offer cannot be changed once voting begins.
•    Early engagement: Where the ATO is a significant creditor, draft plans and supporting documents should be provided at least five full business days before distribution to creditors.

Mos says the increased scrutiny makes early action even more important. “If tax debt is building and cash flow is deteriorating, that's the time for directors and their accountants to start the conversation. An SBR works best when there's a good business underneath the financial distress and enough time to put forward a credible plan,” she says.

Recent Jirsch Sutherland matters highlight how thorough preparation and ATO engagement can rescue viable businesses:
•    The Totem Collective: Rapid growth, COVID disruptions and floods left the national youth social enterprise, which uses skateboarding and creative programs to empower young people, facing financial pressure. An SBR enabled it to restructure its legacy debt, save jobs and continue delivering programs around Australia.
•    WA manufacturer: When a viable WA manufacturer of safety-focused pre-cast concrete products came under financial pressure, the ATO initially indicated it wouldn’t support the proposed SBR. Early engagement proved critical, with detailed ATO feedback allowing the proposal to be revised and ultimately accepted. Timing was also crucial, with the draft proposal provided before an advised period of reduced ATO availability. 

“These are exactly the businesses SBR was designed to help,” says Mos. “SBR remains a powerful second-chance mechanism – but getting the fundamentals right has never been more important.”

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About us:

About Jirsch Sutherland – jirschsutherland.com.au

Established in 1984, Jirsch Sutherland is one of Australia’s leading national independent insolvency specialists, and is the country’s leading voluntary insolvency firm. The Jirsch Sutherland team works closely with small and mid-size accounting, finance and legal firms – and their clients – to provide a wide range of expert corporate and personal insolvency services including liquidations, voluntary administrations, receiverships and bankruptcy. 

With head offices in Sydney, Melbourne, Brisbane, Newcastle and Perth, supported by a network of regional offices and a growing South Australian presence, Jirsch Sutherland’s national reach combined with a local presence underpins the company’s ongoing success. For over three decades, Jirsch Sutherland has earned a well-deserved reputation for protecting and guiding clients through the insolvency process in a fair and ethical way.

In Western Australia, Jirsch Sutherland trades as WA Insolvency Solutions (WAIS).

 

Contact details:

For more information:

Lisa Llewellyn

[email protected]

0419 401 362