Small Business Restructuring and Personal Exposure: What You Need to Know

Running a small business has its challenges. Cash flow pressures, tax debts, and late supplier payments can quickly build up. If you are unable to meet your obligations, there is a solution that could help: the Small Business Restructuring (SBR).

SBR is a way for eligible businesses to reduce their debts and get back on track, without causing any disruption to their operations.

What is Small Business Restructuring?

Small Business Restructuring gives financially distressed businesses an affordable and simpler way to manage debt and continue trading. Legacy debts are reduced through negotiation.

It was introduced to make restructuring more accessible for small businesses, especially compared to traditional voluntary administration.

With SBR:

• Business owners stay in charge of daily operations

• A plan is created to repay creditors over time

• Legacy debts are reduced through negotiation

  
  

Who Can Use SBR?

To be eligible for the SBR process, your business must:

• Owe less than $1 million in total debts

• Be insolvent or likely to become insolvent

• Be up to date with employee entitlements and tax lodgements

What Are the Risks for Directors?

While SBR is helpful, it does not remove all risks — especially personal exposure.

There are two main areas business owners need to be aware of:

1. Director Penalty Notices (DPNs)

The Australian Taxation Office (ATO) can issue a Director Penalty Notice (DPN) making directors personally liable for unpaid:

• PAYG withholding

• GST

• Superannuation Guarantee Charges

  
  

Types of DPNs:

• Non-Lockdown DPN: You have 21 days to act (pay the debt, restructure, appoint an administrator) to avoid personal liability.

  
  

• Lockdown DPN: If lodgements were overdue, personal liability is automatic, and action like SBR cannot remove it.

  
  

If you receive a DPN, starting a Small Business Restructuring within 21 days can prevent personal liability — but only for non-lockdown debts.

2. Personal Guarantees

Directors often personally guarantee business loans, leases, or supplier agreements.

During the SBR period, creditors cannot immediately enforce personal guarantees. However, once the restructuring ends, they can pursue directors for any remaining amounts owed under the guarantee.

Managing personal guarantees carefully is important when negotiating with creditors.

Why Early Action Matters

If you notice signs of financial distress, do not delay. Early advice and a proactive approach can:

• Maximise your recovery options

• Reduce your personal exposure

• Build better outcomes with creditors

  
  

Keeping accurate financial records, understanding your tax position, and staying informed about your obligations puts you in a much stronger position to succeed.

How Bookkeeping Helps in Restructuring

Good bookkeeping is critical during a Small Business Restructuring. It provides the financial clarity needed to:

• Create a viable restructuring plan

• Demonstrate your business's ability to trade successfully

• Support negotiations with creditors

  
  

Tip: At Vivid Enterprise Solutions, we help businesses maintain clear, reliable records so that if challenges arise, they are ready to act with confidence.

Financial setbacks do not have to mean the end of a business. By understanding your options, seeking help early, and putting the right plan in place, you can protect yourself and set your business up for a stronger future.

If you are unsure where your business stands or would like a second opinion, now is the right time to book a call with us.

Disclaimer: This article is intended to provide general guidance and is not specific advice. We encourage you to seek tailored advice for your circumstances.