What happens if creditors reject a small business restructuring plan?
If a majority in value of the creditors who vote do not accept a small business restructuring (SBR) plan, the proposal lapses and the restructuring ends. The protection from creditors ends with it, and the company’s debts remain owed in full. Because the company has now been under restructuring, it generally can’t try SBR again for seven years. The directors need to decide quickly what happens next: another formal process, such as voluntary administration or liquidation, or a direct arrangement with creditors.
How creditors vote on an SBR plan
- The practitioner sends affected creditors the plan, the standard terms, the proposal statement and the practitioner’s declaration, and asks each creditor for a written statement on whether the plan should be accepted.
- Creditors generally have 15 business days to respond. The period can be longer if creditors dispute the schedule of debts.
- The plan is accepted if a majority in value of the affected creditors who return a statement support it. Creditors who don’t respond are not counted.
- Related creditors, such as directors and related companies, and the practitioner are excluded and can’t vote.
The ATO is a creditor in most small business restructurings and is often the largest creditor by value, so its vote is often decisive. If the ATO decides not to support a plan, that decision can’t be reviewed. The ATO isn’t obliged to give reasons, although it says it normally gives general reasons.
What changes when the restructuring ends
| During the restructuring | After it ends without a plan | |
|---|---|---|
| Unsecured creditors | Can’t begin, continue or enforce claims without the practitioner’s consent or the court’s permission | Can resume recovery action, including statutory demands and winding-up applications |
| Personal guarantees | Can’t be enforced against a director, spouse or relative without the court’s permission | The protection ends, so creditors can pursue guarantors |
| Secured creditors, owners and lessors | Need the practitioner’s written consent or the court’s permission to enforce their rights | Can enforce their rights again |
| The company’s debts | Held while the plan is prepared and voted on | Remain owed in full, plus any further interest |
| The directors | Stay in control of the business | Stay in control, and remain bound by their duties, including the duty not to trade while insolvent |
Other ways a restructuring can end before a plan
- the directors declare that it ends on a specified day
- no plan is proposed within the 20-business-day proposal period, or any extension
- the practitioner terminates it, believing on reasonable grounds that the company is not eligible, that a plan would not be in creditors’ interests, or that the company should be wound up
- the court orders it to end
- a voluntary administrator, liquidator or provisional liquidator is appointed.
Director penalty notices
A rejected plan doesn’t change the position on director penalties already locked in. Lockdown director penalties, and any director penalty that was not remitted within 21 days of the notice, remain the director’s personal liability whatever happens to the plan. The ATO can pursue them. If you have received a director penalty notice, see SBR and director penalty notices and our director penalty notice guide.
Plan rejected, or worried it will be?
The days after a rejected vote matter. Talk to us about which option fits before creditors resume action. Book a free 30-minute call with Luke D’Costa, Senior Manager – Debt Strategist.
Book a free 30-minute call Sydney 02 9660 3532 · Brisbane 07 3868 1888
Your options after a rejected plan
| Option | When it may fit |
|---|---|
| Voluntary administration | The business is viable but needs a binding deal with creditors. An administrator takes control, and creditors can approve a deed of company arrangement. There is no seven-year or $1 million limit. |
| Simplified liquidation | The business can’t continue and the company is eligible. The Corporations Regulations allow simplified liquidation where the restructuring terminated no more than 20 business days before the process began, so timing matters. |
| Creditors’ voluntary liquidation | The business can’t continue and simplified liquidation is not available or not suitable. |
| A direct arrangement | The company can pay its debts over time. For tax debt, this may be an ATO payment plan. |
| Another SBR | Generally not available. A company that has been under restructuring can’t use SBR again for seven years. |
For a side-by-side comparison, see voluntary administration, small business restructuring or liquidation: how to choose.
Reducing the risk of a rejected plan
Many rejections can be anticipated. The ATO lists the common reasons it may not support a plan:
- director or related-entity loan accounts have not been repaid
- a poor tax compliance history
- tax liabilities have not been paid
- the plan would give the business an unfair advantage over other businesses.
Where the ATO is a major creditor, it reviews draft plans and gives feedback, provided it receives the draft and all supporting information at least five full business days before the plan is due to go to creditors. It won’t consider a plan until it has everything it asked for. Use that review: it is the last chance to improve the offer, because the plan can’t be changed once voting begins. Our small business restructuring guide lists the information the ATO asks for.
Common questions
What happens if creditors vote against an SBR plan?
The proposal lapses and the restructuring ends. Creditors can resume recovery action, personal guarantees can be enforced, and the company’s debts remain owed in full.
Can the ATO’s decision to reject an SBR plan be reviewed?
No. The ATO says a decision not to support a plan can’t be reviewed. It isn’t obliged to give reasons, although it normally gives general reasons.
Can we change the plan and put it to creditors again?
Not once voting has begun. The ATO says the plan can’t be changed after voting starts, and a company that has been under restructuring generally can’t use SBR again for seven years.
What are the options after an SBR plan is rejected?
Depending on the company’s position: voluntary administration, simplified liquidation if the company is eligible and the timing allows, creditors’ voluntary liquidation, or a direct arrangement with creditors such as an ATO payment plan.
Does a rejected plan affect my director penalty notice?
Lockdown director penalties, and penalties not remitted within 21 days of the notice, remain the director’s personal liability whatever happens to the plan.
Sources: Corporations Act 2001 (Cth) Part 5.3B; Corporations Regulations 2001 (Cth) reg 5.5.03; ASIC, Small business restructuring and the restructuring plan; ATO, Small business restructuring. This page is general information, not advice about your circumstances. Last reviewed: 16 October 2026.
Written by John Chand, Principal and Registered Liquidator. John has more than 17 years’ insolvency experience. Meet the team.
