How to Fund a Small Business Restructure (SBR)

Small Business Restructuring (SBR) is a formal insolvency process introduced into Part 5.3B of the Corporations Act 2001 (Cth) for incorporated small businesses with total liabilities of $1 million or less. The directors remain in control of the company while a registered Small Business Restructuring Practitioner (SBRP) is appointed to oversee the process. The SBRP has up to 20 business days to help the company put a restructuring plan to creditors, who then have up to 15 business days to vote on it. If the plan is accepted, the company pays an agreed amount to creditors in full and final settlement of admitted debts, and continues trading. SBR is the practitioner's process — Andorra Private is a finance broker and does not provide insolvency, restructuring, legal, or tax advice.

By the time a director is considering SBR, the company's working capital is usually exhausted and the most common creditors — the ATO, employees, and trade — are owed material amounts. Two distinct pots of cash are needed: one to start the process (practitioner fees and statutory commencement requirements), and one to settle the plan once it is voted up. Mainstream lenders rarely fund either pot directly because the company is insolvent. Real-estate-backed private lending against the equity in a director's property is the most common funding solution.

Before an SBR can validly commence, three categories of cost typically need to be funded. First, the SBRP's fee for the Restructuring Phase — practitioners are required by law to quote this fee up front. Second, employee entitlements (wages, superannuation, and leave) must be paid up to date — under section 453C of the Corporations Act, an SBR cannot commence while these amounts remain owing. Third, in many cases, other existing finance facilities must be settled as a condition of the SBR or of the new lender. The Tranche 1 drawdown of a purpose-built SBR facility is sized to cover all three.

Once the SBRP has worked with the company to propose a restructuring plan and creditors have voted in favour, the company is required to fund the agreed plan payment. The ATO is the majority creditor in most SBRs, so a significant portion of the plan payment usually settles the agreed dividend on the ATO debt. Importantly, the amount, the cents-in-the-dollar return, and the treatment of each creditor are set entirely by the plan as voted — we do not extinguish a tax liability directly and we cannot influence what the plan returns. Tranche 2 funds the payment due under the approved plan, drawn against the same master limit as Tranche 1.

The most common security structure is a registered 1st or 2nd mortgage over real estate owned by the company director or a related party. Residential, commercial, and mixed-use property are all considered. Whether a 1st or 2nd mortgage is required depends on what is already registered on title and how much equity is available. A 2nd mortgage requires the consent of the existing first mortgagee, which we coordinate as part of the application. Maximum LVR depends on property type, security position, and the lender, and is subject to a current valuation. All approvals are subject to credit, valuation, security position, and lender requirements.

A useful sequence is: engage your accountant or SBRP for initial scoping; obtain an indicative funding range from us based on the proposed master limit, security details, and SBR timeline; the SBRP uses that indicative pre-approval to scope the restructuring plan with funding certainty; once the SBR is ready to commence, we move to formal approval, valuation, and letter of offer for Tranche 1; Tranche 2 settles after the plan is voted up. Indicative figures are not an offer of credit and final pricing is set by the lender at letter of offer.

Private lending of this type carries risks that differ from mainstream bank lending and from any borrower's perspective should be entered only after independent legal advice. Rates and fees are higher than mainstream secured lending. Fees become payable on signing the letter of offer, and commitment, valuation, and legal fees may be incurred from engagement and remain payable regardless of whether the facility proceeds to settlement. A mortgage or caveat is registered over the secured property as a condition of approval. For a full breakdown of the typical cost categories and how they are charged, read our Private Lending Fee Guide at /private-lending-fees.

Andorra Private is a finance broker. We are not a Small Business Restructuring Practitioner, insolvency practitioner, lawyer, or tax adviser, and we do not provide restructuring, legal, insolvency, or tax advice. An SBR can only be commenced and run by a registered SBRP. Our role is to provide the funding alongside the practitioner — we coordinate with your appointed SBRP on timing and conditions, but the practitioner runs the restructuring process and the directors retain control of the company. We strongly recommend independent legal and accounting advice before entering an SBR or signing any finance documents.

Tranche 2 is conditional on the restructuring plan being accepted by the requisite creditor majority and on the related plan-payment conditions being met, so it typically does not draw if the plan is rejected. Tranche 1 obligations remain on foot in that scenario — the SBRP fees, employee entitlements, and any settled finance facilities have already been funded by Tranche 1 and are not refundable. Exit and contingency scenarios — including refinance options or sale of the secured property — should be discussed with both your SBRP and your independent legal adviser before settlement.

If you are a company director considering SBR, the first call should be to a registered SBRP or your accountant — eligibility for the SBR regime is a matter for them to assess, not us. Once you have engaged a practitioner, we can provide an indicative funding range based on the proposed plan and your available real estate security. If you are an SBRP or adviser scoping a plan for a client and want to test funding feasibility before commencement, contact us directly with the security details and indicative quantum and we will respond with an indicative range.