Small business restructurings (SBRs) have dropped sharply as a share of new insolvency appointments, with fresh data pointing to a tougher approval environment for financially distressed businesses.
According to the latest Alares Credit Risk Insights, SBRs made up less than 10% of new insolvency appointments in July, a marked fall from around a quarter of appointments at their peak. Overall insolvency appointment volumes have also eased, returning to levels not seen since 2023.
Restructuring firm Jirsch Sutherland said the decline reflects heightened scrutiny from the Australian Taxation Office, which is frequently the largest creditor in SBR cases and has now issued detailed guidance to practitioners on what it expects from proposals.
Jirsch Sutherland partner Emma Mos (pictured) said the SBR regime remains valuable for eligible businesses, but the process has become more demanding.
"SBR remains a very good regime, and we've seen first-hand the second chance it can give viable businesses," Mos said. "But the days of relatively straightforward proposals are behind us."
She added that a stronger return than liquidation is no longer enough on its own to secure creditor support.
"The underlying business needs to be viable, the numbers need to stack up, and the proposal needs to withstand scrutiny," Mos said.
The ATO's updated expectations cover tax and superannuation compliance, evidence of ongoing viability through cash-flow forecasting, closer examination of related-party transactions, and a requirement that proposals represent a business's best and final offer before creditor voting begins. Where the ATO holds significant creditor status, draft plans are expected to be shared at least five full business days ahead of distribution.
The pressure isn't only playing out through formal restructuring. Recent Equifax data shows ATO tax default disclosures rose 18% year-on-year in Q2 2026, while unincorporated SME exits climbed 37% over the same period — outpacing formal insolvencies by 16%, as more small businesses choose to wind down quietly rather than pursue a formal insolvency pathway.
Jirsch Sutherland pointed to a recent case where early ATO engagement helped secure approval for a viable business: a WA pre-cast concrete manufacturer whose SBR proposal was initially rejected before being revised and accepted following detailed ATO feedback.
Mos said the timing of engagement is increasingly critical for businesses under financial pressure.
"If tax debt is building and cash flow is deteriorating, that's the time for directors and their accountants to start the conversation. SBR works best when there's a good business underneath the financial distress and enough time to put forward a credible plan," she said.
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