ATO scrutiny not slowing surge in small business restructures
Small Business Restructuring (SBR) appointments have tripled in the first half of the 2025 financial year¹, revealing both growing awareness of the scheme and increasing financial pressure on SMEs. This surge coincides with reports that the Australian Taxation Office is tightening its approach to debt repayment plans, creating a challenging environment for debt-stressed businesses.
Despite ongoing industry scepticism about restructuring strategies, "The criticism that SBRs merely delay inevitable failure is contradicted by the data," notes Jarvis Archer, founder and Managing Director of Business Reset. "Less than 5 per cent of over 200 SBR proposals accepted by creditors have been terminated before completion, highlighting the transformative potential of well-executed restructuring plans. SBRs yield better returns to creditors than liquidation," Archer says.
"The ATO and other creditors typically receive more through a structured payment plan than they would through fire sales of assets. It's a win-win when done correctly."
Industry analysis indicates the ATO is getting tougher on proposed repayment and restructuring plans by refocusing on compliance as it seeks to recover mounting tax debt. Despite this increased scrutiny, well-structured SBR proposals continue to achieve approval from creditors when properly prepared.
"The surge in Small Business Restructuring highlights a significant shift in how distressed businesses approach financial difficulties," says Gareth Gammon, Director of Insolvency Australia. "Rather than defaulting to liquidation, more directors are recognising restructuring as a viable pathway to recovery. This trend not only preserves jobs and supplier relationships but also provides better returns for creditors, reinforcing the importance of early intervention and expert insolvency guidance."
CONSTRUCTION AND HOSPITALITY BEAR THE BRUNT OF ECONOMIC PRESSURE
Recent ASIC data reveals nearly half (49.6%) of all SBR appointments are concentrated in just two sectors: Construction (28.3%) and Hospitality (21.3%) ². This disproportionate representation highlights the perfect storm of challenges facing these industries as they navigate post-pandemic recovery challenges.
The construction sector leads SBR appointments, reflecting ongoing supply chain disruptions, material cost inflation, and fixed-price contracts that have squeezed margins across the industry.
"While the construction sector is experiencing less distress than previous years, many businesses remain burdened with legacy debt from fixed-price contracts that resulted in significant losses. SBR has proven to be an invaluable lifeline for these businesses," says Michael Renton, CEO and Founding Partner, Xact Accounting. "It allows fundamentally healthy companies to restructure their obligations, stabilise cash flow, and continue trading effectively."
The hospitality sector follows closely behind, still grappling with staff shortages and changed consumer behaviours post-pandemic.
"The ATO has been applying maximum pressure to collect its debts. Many businesses have simply ceased paying the ATO as they struggle with increased costs due to inflation. In the hospitality sector, particularly in Victoria, many businesses had substantial ATO debt coming out of COVID-19," says Shane Rose, Managing Director of Rose Corporate. "We've had success with clients going through an SBR, ensuring business continuation where liquidation would have been the only alternative."
SUCCESS RATES REMAIN STRONG WITH SPECIALISED APPROACHES
While creditor scrutiny has intensified, analysis shows that restructuring plans developed by insolvency specialists continue to achieve approval when properly prepared. Without the SBR option, many viable businesses would face closure, or directors might resort to phoenixing - an option fraught with legal risks and severe consequences.
The SBR process provides a transparent, legally sound alternative that allows businesses to address debt issues while maintaining their reputation, customer base, and supplier relationships. Business Reset has guided over 200 businesses through the SBR process since 2023³, including many firms in overrepresented industries.
ECONOMIC INDICATOR: SBR TRENDS SIGNAL BROADER INSOLVENCY CRISES
Industry analysts across Australia have increasingly recognised that Small Business Restructuring is providing better returns for creditors while allowing viable businesses to continue operating. This dual benefit supports both economic stability and recovery in sectors under pressure.
The SBR statistics provide a valuable economic indicator of sectoral stress. The concentration in construction and hospitality highlights where policy support might be most needed to address underlying structural challenges.
As economic challenges persist and the ATO intensifies its recovery efforts, the surge in SBR appointments serves as an important barometer of business adaptation to evolving market conditions. For businesses facing financial pressure, seeking specialised advice early remains the key to successful outcomes.
References:
¹ Insolvency Australia Corporate Insolvency Index, H1 2025
² Analysis of ASIC Insolvency Statistics to December 31, 2024
³ Business Reset internal data, 2023-2024
⁴ Interview with Jarvis Archer, February 2024
⁵ news.com.au, "Insolvencies | date-night economics contributing to hospitality insolvencies", 24 September 2024
