SBR misconceptions, rising DPNs, and what’s next for small business directors

ASIC data released in June found SBRs initially had an 87 per cent success rate, now trending down to 65–70 per cent.

The report also suggests that approximately 87 per cent of funds went to the ATO[AP1]. This is important because it indicates the ATO is the largest creditor by value in most (if not all) SBR’s, and an SBR is only successful if the majority in value of creditors vote to accept the restructuring plan. If the ATO is not supportive of the plan, it will likely fail.

With this in mind, the downward trend in the success rates of an SBR is most likely due to their being an upward trend in the use of the SBR process – from 1,425 in FY23–24 to 1,515 in FY24–25, with the number predicted to be around 3,000 by the end of 2025, together with the ATO more heavily scrutinising which companies and in turn, its directors they are willing to support.[AP2] 

Creditors with the largest debt exposure, such as the ATO might be less willing to support an SBR proposal where there are clear signs of a history of poor decision making when it comes to tax compliance. A further contributing factor would be when the directors draw funds from the company, thereby depleting the company of funds to pay its tax and other creditor obligations. 

In instances such as this, an SBR may not be the best available option. In these circumstances, when considering an SBR, a director should seek the advice of a full registered liquidator who will be more inclined to recommend an alternate restructuring service, as opposed to someone who is only able to act as a small business restructuring practitioner (SBRP).  

At the same time, there has been an increase in DPNs as the ATO is focused on the collection of debt, particularly where directors are not actively fulfilling their duties by not reporting or paying taxes owed by their company. In instances where a director allows their company to fall behind with its tax obligations, the ATO will likely issue a DPN on a director personally, which can lead to that director being made personally liable for the company’s unreported and/or unpaid tax obligations.

The interplay between SBRs and DPNs

SBRs and DPNs are increasingly interconnected, creating both opportunities and risks for directors navigating financial distress.

The ATO has adopted a dual approach:

· Supportive measures: The ATO is willing to support directors whose company has suffered for verifiable reasons while at the same time has been engaging with the tax office by lodging returns and attempting to repay tax debt, particularly where there is an underlying business to save. In instances like this, the ATO will likely support the SBR plan as a pathway for distressed businesses to restructure and continue trading. The ATO is less likely to support directors who don’t appear to have made a genuine attempt to have their company comply with its taxation obligations and have personally enriched themselves.

· Compliance enforcement: Intensifying recovery efforts through DPNs, which make directors personally liable for unpaid PAYG, GST, and superannuation obligations.

This combination means directors whose company is suffering from financial distress must act swiftly to obtain advice from a registered liquidator on the full suite of options available to their company, and act decisively to mitigate ongoing damage and economic loss. By doing so, a director will also mitigate the exposure to personal liability for their company’s debts.

Risk factors include:

· Delayed action: Waiting too long to address financial distress increases the likelihood of receiving a DPN. It can also lead to poor decision making in the lead-up to the commencement of an SBR, such as allowing the tax debt to continue to accrue, preferring to pay essential suppliers and drawing funds out as director drawings. Actions such as this limit the options available to restructure.

· Non–compliance: Failure to lodge returns or pay employee entitlements can trigger personal liability, even if the business enters restructuring later.

· Limited window: Once a DPN is issued, options narrow significantly, making proactive engagement essential.

· Getting poor advice: To be able to make an informed decision on the full suite of available options and which one is best for the company and a director, it’s best to seek out the advice of a fully registered liquidator. Predictions and trends