If you're facing company debt pressures, deciding between keeping your business running through Small Business Restructuring (SBR) or closing it down through liquidation represents one of the most significant decisions you'll make as a director.
Both paths offer valid solutions, but their outcomes differ dramatically.
Understanding the key differences between these options helps you make an informed choice that aligns with your situation and goals. Let's explore what each path offers and how to determine which might better suit your circumstances.
Understanding your options at a glance
Before diving into detailed comparisons, it's helpful to understand the fundamental differences between these two debt solutions. While both address company debt challenges, they take very different approaches to resolving them.
Small Business Restructuring (SBR)
Keeps your business trading
Reduces debts (typically by about 70%)
Requires under $1 million in total liabilities
Allows you to retain control of your company
Provides a structured payment plan for remaining debts
Helps preserve business relationships and goodwill
Liquidation (Creditors Voluntary Liquidation)
Closes your business
Ends all company debts
No debt limit restrictions
Control passes to the liquidator
Business assets are sold to pay creditors
Provides a clean break and fresh start
When Small Business Restructuring makes sense
Sometimes businesses face temporary challenges despite having fundamentally sound operations. SBR often provides the ideal solution when your business demonstrates ongoing viability but needs help addressing historical debt issues.
Several key indicators suggest SBR might suit your situation:
Your core business is still viable despite current debt challenges
You've addressed the issues that led to financial difficulty
Your total liabilities are under $1 million
You're up to date with employee entitlements
You want to keep trading and preserve business value
A key advantage of SBR is maintaining control of your business while working with a Small Business Restructuring Practitioner to develop a debt reduction plan. This continued control allows you to:
Continue serving your customers
Keep your employees in their jobs
Maintain business relationships
Preserve your company's goodwill
Build towards a stronger financial future
The SBR process explained
When you choose SBR, you'll work closely with an approved practitioner who guides you through the process while letting you maintain operational control. This collaborative approach helps ensure the best possible outcome for all stakeholders.
During the process, you'll work with your practitioner to:
Assess your business's current position
Develop a sustainable debt reduction plan
Negotiate with creditors
Implement a structured payment arrangement
Most SBR plans run for 12-24 months (up to 36 months), providing valuable breathing space to trade out of difficulty while significantly reducing your debt burden. This structured approach helps create sustainable solutions that benefit both your business and its creditors.
When liquidation might be the better choice
While preserving your business through SBR often appears attractive, sometimes liquidation through a Creditors Voluntary Liquidation (CVL) provides the more appropriate solution. Understanding when liquidation makes sense helps you make an informed decision about your company's future.
Liquidation might better suit your situation if:
Your business model is no longer viable
Total liabilities exceed $1 million
There's no clear path to profitability
You're ready to walk away and start fresh
The industry or market conditions have changed permanently
You're facing persistent cash flow problems
Liquidation provides a structured way to:
End your company's debts
Close the business properly
Meet your director obligations
Distribute available assets fairly
Move forward without ongoing stress
Understanding the liquidation process
Choosing liquidation initiates a formal process managed by an appointed liquidator. Understanding what happens helps you prepare effectively and manage the wind-down professionally.
If you choose liquidation, you can expect:
Initial consultation with a liquidator
Director and shareholder resolutions
Appointment of liquidator
Asset realisation and distribution
Investigation and reporting
Finalisation and deregistration
The process typically takes 6-12 months, depending on your company's complexity and circumstances. Throughout this time, the liquidator manages all aspects of the wind-down, allowing you to focus on your future plans.
Making your decision: 3 key considerations
Choosing between SBR and liquidation requires careful evaluation of multiple factors. Taking time to assess these elements helps ensure you make the right choice for your situation.
1. Business viability
Take an honest look at your company's future potential:
Can your business return to profitability?
Are your current challenges temporary or permanent?
Has your market changed fundamentally?
Do you have reliable revenue streams?
2. Financial position
Understanding your numbers proves crucial:
What's your total debt level?
Are you eligible for SBR?
Can you meet ongoing trading obligations?
What assets does the company have?
3. Personal factors
Consider your own situation carefully:
Do you want to continue in the business?
How's your energy and health?
What are your long-term goals?
Can you commit to a restructuring period?
Real-world examples
Understanding how other companies have navigated similar decisions can help inform your choice. Consider these contrasting experiences:
Sarah's café had accumulated $400,000 in tax debt during COVID-19, but the business remained popular and profitable. Through SBR, she reduced the debt by 70% and kept trading. The remaining $120,000 was paid off over 12 months, and the business continues to thrive.
In contrast, Tom's manufacturing company faced $1.2 million in debts and ongoing losses due to overseas competition. Liquidation provided the cleanest exit, allowing him to move on without the burden of company debts and explore new opportunities.
Next steps: Getting expert guidance
Making this significant decision shouldn't happen in isolation. Professional support can help you evaluate your options thoroughly and choose the most appropriate path forward.
Our team of restructuring experts can help you:
Assess your company's current position
Understand all available options
Make an informed decision
Implement the chosen solution effectively
Take action today
Don't let uncertainty about your company's future keep you awake at night. Contact our team for a confidential discussion about your situation. We'll help you understand whether Small Business Restructuring or liquidation offers the right path forward for your company.
Remember: The earlier you act, the more options you'll have available. Reach out today for clarity on your next steps.
Read next: Why Small Business Restructuring (SBR) could be your company's lifeline
Or back to: Small Business Restructuring (SBR) Guide for Company Directors
