Why businesses restructure, and why timing decides whether it works

Small business restructuring means changing how a business is held, owned or funded: the entities it trades through, who owns them, where the assets sit, and what it owes. Businesses restructure for four reasons. To grow, to fix the tax position, to deal with a change in ownership, or because the business is in financial difficulty. The legal process follows the same outline every time: decide what the new structure has to achieve, model the tax and duty, obtain the consents, then move the assets, people and contracts in the right order.

In insolvency the phrase has a narrower meaning. Small business restructuring is also the formal debt restructuring process under Part 5.3B of the Corporations Act 2001 (Cth), covered below.

The difference between a restructure that works and one that costs money is usually timing. Restructures done in a hurry, around a raise, a sale or an ATO demand, are where assets end up in the wrong entity, duty is paid unnecessarily, and contracts quietly stop applying.

Restructuring a business for growth

Most growth restructures separate risk from value. A common structure is a holding company above a trading company, with intellectual property and property held outside the entity that signs customer contracts and employs staff. If the trading company is sued or fails, the valuable assets are not sitting next to the liabilities.

Raising capital is the other driver. Investors want a single proprietary company with a clean register of members, a constitution and shareholders agreement fit for outside capital, and ownership of the code, brand and customer contracts. If any of those sit with a founder, a family trust or an older entity, the restructure has to happen before the term sheet, not as a condition of it.

Tax: the most common reason for a company restructure

Moving assets between entities is, by default, a disposal for tax purposes. Roll-over relief is what makes most restructures workable. The main options are the small business restructure roll-over in Subdivision 328-G of the Income Tax Assessment Act 1997 (Cth), which requires aggregated turnover under $10 million, a genuine restructure of an ongoing business and no change in ultimate economic ownership; the roll-over in Subdivision 122-A when a sole trader or partnership incorporates; and Division 615 when a new holding company is interposed.

Three cautions apply. Roll-overs defer tax rather than remove it, and because companies have never had the CGT discount, a gain built up before the restructure can be taxed in full when the company sells. Roll-overs are federal income tax relief only: stamp duty is a state matter, and corporate reconstruction relief generally has to be applied for. And meeting a roll-over does not stop Part IVA applying, so the commercial reason should be documented at the time.

Two federal changes are prompting reviews. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, from 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax on gains accruing from that date, with gains accrued before then keeping the discount. Separately, the Government has announced a 30% minimum tax on discretionary trusts from 1 July 2028, with a three-year roll-over from 1 July 2027 for moving out of discretionary trusts into companies or fixed trusts. That measure is not yet law. For businesses trading through a discretionary trust, it is likely to be the biggest reason to restructure over the next three years, and a reason not to move before the new roll-over is available.

Ownership changes

A change in who owns the business is a restructure even where nothing else moves: co-founders separate, an investor comes in, the business passes to the next generation, or management buys out the owner.

• Transfers and issues. The constitution and shareholders agreement usually control both, through pre-emptive rights, board approval and leaver terms. A transfer that ignores them can be challenged.
• Buy-backs. A company buying back a departing shareholder's shares must follow Part 2J.1 of the Corporations Act, cannot proceed if it would materially prejudice its ability to pay creditors, and for a selective buy-back usually needs a special resolution on which the seller cannot vote in favour.
• Management buy-outs. Where the company helps fund the purchase of its own shares, the financial assistance rules in section 260A apply.

A proprietary company must notify ASIC of changes to its members within 28 days, and the shareholders agreement should be checked against the new cap table.

When the business is in financial difficulty

Here the directors' personal position becomes part of the analysis. Directors must not let the company incur debts while insolvent (section 588G). The safe harbour in section 588GA protects them while they pursue a course of action reasonably likely to lead to a better outcome than administration or liquidation, but only if employee entitlements, including superannuation, are being paid and tax reporting is up to date.

Directors are also personally liable under the director penalty regime for unpaid PAYG withholding, GST and superannuation guarantee charge. Where those amounts were not reported to the ATO in time, putting the company into administration or liquidation no longer removes that liability. And a restructure cannot be used to move value away from creditors: transferring company property for less than market value in a way that defeats creditors can be unwound by a liquidator, and exposes the directors and any adviser involved.

Corporate debt restructuring: what it means

Corporate debt restructuring means changing the terms of what a company owes so that it can keep trading: extending repayment terms, reducing the debt, converting it to equity or refinancing. Done informally, it is private and cheaper but binds only the creditors who agree. A formal process can bind a dissenting minority.

How the small business restructuring process works

Part 5.3B is designed for smaller companies, and its key feature is that the directors stay in control throughout.

• Eligibility. Total liabilities of no more than $1 million when the process begins, and no restructuring or simplified liquidation in the previous seven years involving the company or a company of which a current director was a director, subject to limited exceptions.
• Appointment. The board resolves that the company is insolvent or likely to become insolvent and appoints a registered small business restructuring practitioner. Unsecured creditors are generally stayed, and counterparties generally cannot terminate contracts merely because of the appointment.
• Plan and vote. The company has 20 business days to propose a plan, by which time employee entitlements due must be paid and tax lodgements brought up to date. Creditors then generally have 15 business days to vote, and the plan passes on a majority by value of those voting. Related creditors cannot vote.

It is not available to sole traders or partnerships, and it is the wrong tool if the business is not viable or a secured lender is not on side. Voluntary administration, where an administrator takes control and creditors usually decide the company's future within five to six weeks, may fit better. ASIC is due to release its third review of the regime, and the Government has said it will look at whether the $1 million cap should rise.

Employees, contracts and the paperwork

A restructure only works if the business actually ends up in the new structure.

• Employees. Moving staff to a new entity needs new employment terms. Between associated entities, the transfer of business rules in Part 2-8 of the Fair Work Act 2009 (Cth) will usually carry the industrial instruments and prior service across. A redundancy is genuine only if the job is no longer required, consultation obligations are met and redeployment, including within associated entities, was not reasonable (section 389).
• Contracts and leases. Assignment and change of control clauses decide whether a contract can move and whether the counterparty can terminate. Most leases need landlord consent, and landlords are usually the slowest consent in the process.
• Finance. Loan agreements and security deeds usually prohibit restructures without lender consent, and PPSR registrations need updating.
• IP, licences and registrations. IP must be assigned in writing to the entity meant to own it. Many licences are not transferable, and new ABN and GST registrations, bank accounts and insurance need to be in place before the new entity trades.

What the legal process looks like

1. Define the end state. Agree what the structure must achieve and draw it, entity by entity.

2. Diligence the current structure. Constitution, shareholders agreement, register, finance, leases, key contracts and employment arrangements, so the restrictions are known at the start.

3. Model the tax and duty with the accountant, and obtain a private ruling or duty exemption first where the numbers justify it.

4. Obtain approvals and consents from the board, shareholders, landlords, lenders and key customers.

5. Prepare the documents and a step plan setting out what happens, in what order, on what day.

6. Implement and close out, including ASIC notifications, registers, revenue lodgements and PPSR updates.

A simple holding company interposition can take a few weeks. Anything needing a duty ruling or lender or landlord consent can take months, so if a sale or raise is coming, start the restructure first.

Common questions

What is small business restructuring?

It is the formal debt restructuring process under Part 5.3B of the Corporations Act 2001 (Cth) for companies with liabilities of up to $1 million. The directors stay in control, a registered practitioner oversees the process, and the plan binds unsecured creditors if a majority by value of those voting approve it.

Do I need ATO approval to restructure my business?

Generally no. Income tax roll-overs are self-assessed, although a private ruling can give certainty on larger transactions. Stamp duty relief usually has to be applied for with the relevant state revenue office.

Can a business restructure to get away from its debts?

Not lawfully. A transfer of property for less than market value that defeats creditors can be unwound by a liquidator and exposes the directors and advisers involved. A legitimate debt restructure deals with creditors through a negotiated deal or a formal process.

How long does a company restructure take?

From a few weeks for a simple interposition to several months where consents or duty rulings are needed. A small business restructuring process usually runs about seven weeks from appointment to the end of the creditors' vote.

How Zed Law can help

We design restructures with your accountant and do the legal work that makes them stick: the step plan, documents, consents, employee transitions and filings, in the order that protects the tax and duty outcome. If the business is under pressure, we advise directors on safe harbour, deal with the ATO and key creditors, and work with practitioners on a restructuring plan or administration.

Fixed fee, agreed before we start. Book a free introductory call and we will tell you what the restructure needs, what it will cost, and whether we are the right people to run it.

Contact us at hello@zedlaw.com.au

This article is general information only and does not constitute legal advice. It does not take account of your particular circumstances, and you should obtain advice tailored to your situation before acting. Current as at October 2026.

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