When a business faces financial distress, directors often feel overwhelmed by the decisions they need to make. Two common options are liquidation and small business restructuring (SBR). But which path is the right one for your company? Understanding the key differences and their impact can help you make an informed choice.
What Is Small Business Restructuring (SBR)?
Small Business Restructuring (SBR) is a process that helps eligible Companies regain stability by restructuring their debts while continuing to trade. It offers struggling businesses a fresh opportunity to rebuild and move forward with confidence.
Key benefits of SBR:
Directors remain in control while working with a restructuring practitioner.
Debts can be compromised—in some cases, creditors agree to reduce debts by up to 70%, allowing partial repayment over time.
The business continues trading, preserving jobs and goodwill.
Lower costs compared to administration or liquidation.
What Is Liquidation?
Liquidation is the process of winding up a company’s affairs and selling its assets to pay off creditors. Once the process is complete, the company ceases to exist. There are two main types:
Creditors’ Voluntary Liquidation (CVL): When directors decide to close the company because it is insolvent.
Court-Ordered Liquidation: When a creditor forces the company into liquidation through a court application.
Key considerations for liquidation:
Directors lose control of the business.
The company’s assets are sold to repay creditors.
Employees are terminated, but may be eligible for entitlements through government schemes.
Liquidation may allow directors to move on and avoid further liability.
How to Decide: Liquidation or Restructuring?
Is the Business Still Viable?
If your business has a solid customer base and a pathway to recovery, SBR might be the right choice.
If debts are too high and the business has no future, liquidation may be inevitable and being proactive is the key to the best outcome.
Can the Business Afford a Repayment Plan?
SBR requires cash flow to meet ongoing expenses and a reasonable offer to creditors.
If cash flow is too weak, liquidation may be the better option.
Are Directors at Risk of Personal Liability?
If directors have personal guarantees or are facing a Director Penalty Notice (DPN) from the ATO, seeking advice early is crucial.
Liquidation can sometimes help limit personal liability, but won't deal with personal guarantees.
What Are the Long-Term Goals?
If directors want to keep the business running and have a viable recovery plan, restructuring is the preferred option.
If they want to move on and start fresh, liquidation may be a cleaner break.
What if the business is viable but I am not eligible for an SBR
Liquidation is not always the end of a Company. We have strategies to preserve the business, through liquidation.
If there is not path to SBR eligibility, then we can look at alternative strategies to do so.
Resolv is here to help
Every situation is different, and the best course of action depends on your specific financial circumstances. Speaking to our team of experts at Resolv can help directors weigh their options and make the best decision for their business and personal situation.
If your business is struggling, don’t wait—early intervention can make all the difference. Contact us today to explore your options.