For small construction businesses, staying solvent can be a balancing act. Delays in payments, rising material costs, underpriced contracts, or one failed project can create a domino effect that quickly leads to financial distress. When that happens, many directors assume liquidation is their only option – the end of the line for the business and its employees.
But there’s another path worth considering: small business restructuring (SBR).
Introduced during the COVID-19 pandemic and now embedded in Australian law, the SBR process offers struggling but viable companies a structured, less disruptive way to manage their debts and potentially stay in business. Unlike liquidation or administration, the directors stay in control. The goal is to negotiate a plan with creditors that gives everyone a better outcome than a shutdown.
But SBR isn’t a one-size-fits-all solution. There are eligibility hurdles to clear, limitations to be aware of, and risks involved if the process doesn’t go to plan.
This article explains what SBR is, how it works, the benefits it can offer to small construction businesses and the disadvantages you need to weigh up before committing to it.
What Is Small Business Restructuring?
Small business restructuring is a formal insolvency process designed to give eligible small companies a chance to trade out of financial trouble under a structured plan, without handing complete control over to an external administrator.
It was introduced in 2021 as part of COVID-19 reforms and is now part of the Corporations Act. The process allows a company to work with a registered restructuring practitioner to prepare a plan to repay its debts. That plan is then offered to creditors for approval. If the majority of creditors (by dollar value) agree, the plan becomes binding, and the company avoids liquidation.
One of the key differences from other forms of external administration is that the directors stay in control of the day-to-day business throughout the process. They are supported by the restructuring practitioner, who provides oversight and ensures the plan is viable, but they don’t step aside. Critically, the SBR process does not trigger an automatic kill-switch for your QBCC licence like other forms of external administration in Queensland.
This makes SBR an attractive consideration or small construction firms that are in financial distress but believe they can recover, particularly if they have projects underway or contracts in place that they want to see through.
Who Can Use It?
Not every company qualifies for small business restructuring. To be eligible:
- the company must be insolvent or likely to become insolvent;
- it must have less than $1 million in total debts;
- it must be up to date on tax lodgements and employee entitlements;
- neither the company nor its directors can have used SBR or been involved in liquidation in the past 7 years.
That last point is important: SBR is intended to be a one-off opportunity, not a revolving door of debt clearance.
For construction businesses, the $1 million debt threshold can be limiting. Larger builders or head contractors, or companies operating across multiple sites, may exceed that figure quite easily. But for subcontractors or smaller trades-based companies (like formwork, landscaping, or cladding companies) it can be a viable fit.
The Benefits of Choosing Small Business Restructuring
You Keep Control of the Business
The biggest drawcard of SBR is that directors retain control of the company during the restructure. This contrasts with voluntary administration, where the administrator takes over and runs the business.
For owners who’ve spent years building their company (and who believe it still has a future) this control can be a deciding factor. It allows you to maintain relationships, manage staff, and keep operations going, rather than being sidelined while an outsider makes decisions on your behalf.
You also get to work with a restructuring practitioner of your choosing. That allows for a more collaborative approach than the often combative nature of administration or liquidation.
Your Building Licence can Survive SBR
In Queensland, if a construction company goes into liquidation or voluntary administration, the QBCC will generally immediately cancel its licence (there are exceptions but they are not common). That means the company cannot legally continue working, regardless of whether it has projects underway.
But the QBCC Act hasn’t been updated to account for small business restructuring. As a result, companies undergoing SBR can, in most cases, retain their licence, at least from a regulatory perspective. At the moment, the suggestion is that the QBCC isn’t pushing to include SBR in the normal exclusion processes and wants to work more cooperatively with companies involved in SBR.
That means you may be able to continue working during the restructure, complete current jobs, and use that income to fund the proposed repayment plan.
Of course, holding a licence is one thing, being able to comply with its requirements is another. You still need to meet the practical and financial tests that apply to any licensee. But if the business is viable, this can be a major benefit. If the company’s financial issues are dire, however, your continued licence might need a personal guarantee or other comfort to the QBCC to pass the minimum financial requirements.
It’s More Affordable and Streamlined
Compared to full administration or liquidation, SBR is a lower-cost and lower-stress option. There are no formal creditors’ meetings, no advertising of the process, and fewer procedural steps.
This makes it particularly suitable for smaller operators who don’t have the resources (or time) to deal with a more drawn-out administration.
It also helps that the process is generally faster. A plan must be developed within 20 business days, and creditors vote within a further 15. That means you can get clarity, one way or another, within a few weeks, rather than months.
That said – “more affordable” doesn’t mean free. The need for external advisors still exist, and they will still be charging professional rates.
Creditors Often Get a Better Outcome
For creditors, SBR can be a better alternative to liquidation. If the company has the potential to continue earning revenue and directors are willing to contribute or repay debts over time, then the return to creditors may be higher than the cents-on-the-dollar typically offered in liquidation.
This can motivate creditors to support the plan. It also means that directors who want to do the right thing by their suppliers and subcontractors have a genuine pathway to do so, even if they can’t pay everything upfront.
What Are the Disadvantages?
Of course, SBR isn’t right for every business, and it doesn’t always work. There are some key disadvantages and risks to consider.
You Might Not Be Eligible
The eligibility rules are strict, and some struggling companies won’t meet them.
The $1 million debt limit is total (not per creditor) and includes secured debts, tax debts, and employee entitlements. For many construction firms, especially those with multiple projects or equipment loans, that threshold can be reached quickly.
You also need to be up to date on your tax lodgements and superannuation obligations. That’s often not the case for companies in financial distress, particularly if they’ve already started falling behind on statutory payments.
If you don’t meet these criteria, you’ll have to consider other forms of external administration like voluntary administration or liquidation or look for informal workout solutions with your creditors.
Creditors Can Say No
Even if you meet the criteria and submit a plan, the restructure only goes ahead if more than 50% of creditors (by value) agree.
If key creditors don’t support it or don’t trust the company to deliver on its promises, they can vote against it and the plan will fail. At that point, the company may be forced into liquidation anyway.
This is why transparency and clear communication are critical. The plan must be realistic, fair, and well-documented. It’s also important to have the support of your restructuring practitioner, who can help you understand what creditors are likely to accept.
It May Require Directors to Inject Funds
In many SBR plans, the business doesn’t have enough working capital to repay debts on its own. That means directors may need to contribute personal funds, often as a lump sum to secure creditor support.
This can be risky particularly if the plan fails and the company ends up in liquidation anyway. If directors have personally guaranteed business debts (which is common in construction), they could still be exposed.
Before agreeing to any plan, directors should understand the full extent of their obligations and personal liability, both under the plan and in a worst-case scenario.
Practical Challenges May Still Derail the Business
Even if the restructure is approved and the licence remains valid, practical challenges remain. Suppliers may stop offering credit. Staff may leave. Clients may hesitate to award new work if they find out the company is in restructure.
And if a project has been delayed or underperformed, the reputation hit may be enough to prevent future contracts.
In short, the plan might be in place but that doesn’t guarantee the business will survive. Execution is everything.
SO, Is It a Lifeline or Just Delaying the Inevitable?
Small business restructuring is not about pretending everything is fine or sweeping debt under the rug. It’s a formal legal process designed to give viable companies a last chance to reset, restructure their debts, and avoid collapse.
In the right circumstances, it can work. If your business has stable clients, ongoing work, and a reasonable path to recovery, and you act early, then SBR may be exactly what you need.
But if the business is fundamentally unviable, can’t meet its obligations, or can’t win creditor support, then SBR may only buy a few months before liquidation becomes unavoidable.
The key is to get advice early. A lawyer or restructuring practitioner can help you assess whether your company is eligible, what a realistic plan looks like, and what steps you need to take now to keep your options open.
For construction companies especially, where licensing issues and project continuity are critical, the ability to keep operating while restructuring debts can make all the difference. But the window to act is short.
If your company is in distress, don’t wait for the walls to fall in. Talk to someone. Explore your options. And if small business restructuring is a fit, use it properly and proactively.
