Small Business Restructuring in 2026: Real Outcomes and a Higher Bar from the ATO

Small Business Restructuring (SBR) continues to prove its value as a genuine alternative to liquidation for viable small businesses.

We saw this first-hand in March, with two restructuring plans approved that delivered strong, real-world outcomes for creditors while allowing the businesses to continue trading.

At the same time, the Australian Taxation Office (ATO) has made it clear that SBR plans are now being assessed under tighter scrutiny. Updated guidance issued in March 2026 sets out, in much clearer terms, how the ATO approaches voting on restructuring plans and what it expects from directors and restructuring practitioners (download here).

This blog covers both sides: recent successful outcomes and what has changed in practice.

Recent SBR Outcomes: Proof the Regime Works

In March, we had two SBR plans approved where the companies were able to demonstrate genuine viability and fair creditor outcomes:

• One plan returned 33.91 cents in the dollar to creditors.

• The second delivered 33.54 cents in the dollar.

In both cases:

• The businesses continued to trade.

• Employees kept their jobs.

• Creditors received a materially better return than liquidation.

• The ATO supported the plans following a detailed review of the underlying financial position and conduct.

These outcomes reinforce an important point: well-prepared SBRs can work, but only where the fundamentals stack up.

The ATO Is Now Applying a Higher Standard

The ATO has always been a key creditor in most SBRs. What has changed is how clearly it has articulated its expectations.

In its March 2026 guidance to restructuring practitioners, the ATO confirms it undertakes a comprehensive assessment before deciding how to vote on a restructuring plan. The focus is on whether the plan is fair, viable, and consistent with the integrity of the tax system.

Practically, this means closer scrutiny of director behaviour, related party dealings, and whether the plan genuinely addresses the causes of the company’s tax debt.

Key ATO Considerations When Voting on an SBR Plan

Based on the updated guidance, the ATO weighs the return offered under the plan against a range of risk and conduct factors, including:

Compliance and Viability

• Potential breaches of corporate law

• The company’s capacity to meet plan contributions in full and on time

• The ability to meet ongoing tax and superannuation obligations after the plan starts

• Tax compliance history, including directors and related entities (particularly patterns of late lodgements or unpaid debts)

Director and Related Party Issues

• Related party loans, especially where balances increased while tax debts went unpaid

• Reclassification of director loans to wages or salary, which can create additional PAYG liabilities and impact profitability

• Significant payments to related parties or other creditors while tax debts remained outstanding

• Dealings with related entities where goods or services were provided without proper reimbursement

Use of Funds and Asset Decisions

• Major asset purchases made while tax debts were growing

Tax and Enforcement Factors

• The impact of any R&D tax offsets

• Existing lockdown Director Penalty Notices

• Any attempt to limit the ATO’s ability to pursue directors personally

• Whether proposed payment allocation requests comply with ATO policy

All of these factors are assessed together, not in isolation, and balanced against the return being offered under the plan.

What This Means for Directors and Their Accountant

The key takeaway is that SBR is no longer a light-touch process.

We are also seeing an increase in intermediaries promoting SBR without fully supporting the process. In some cases, businesses are referred into a restructuring, fees are incurred upfront, and the level of advice or preparation required to achieve a viable outcome is not delivered. This can leave directors in a worse position, with fewer options available.

For directors:

• Tax compliance history matters

• Related party behaviour will be closely examined

• Plans that ignore past conduct or shift risk onto the ATO are unlikely to succeed

For accountants:

• Early work on lodgements and super is critical

• Director loan accounts and related party transactions must be addressed transparently

• Cash flow forecasts and contribution capacity must be realistic, not optimistic

The SBRs that are approved are those that deal with the hard issues upfront.

Final Thoughts

The two successful SBRs approved in March demonstrate that the regime can still deliver strong outcomes but the bar is clearly higher.

A credible SBR in 2026 requires:

• An honest assessment of past conduct

• A plan that meaningfully addresses tax debt

• Clear evidence the business can trade viably going forward

It is also important to recognise that SBR is only one formal restructuring pathway, and it will not be suitable in every situation. Depending on the circumstances, other options may be more appropriate, including:

• Voluntary administration leading to a DOCA, where greater flexibility or creditor engagement is required

• Orderly liquidation, followed by a fresh start where appropriate and compliant with director duties

The right restructuring pathway depends on the facts, the conduct history, and whether the underlying business is genuinely viable. Choosing the wrong process can compound problems rather than solve them.

When the right option is selected and properly implemented, the ATO will support restructuring over liquidation.

If you are considering any form of restructuring, early advice and a clear-eyed assessment of all available options have never been more important.