SBR vs Liquidation: what’s the difference?

SBR vs Liquidation: what’s the difference?

In simple terms, SBR is designed to help a business recover, while liquidation is used to bring a business to an end.

Differences at a glance

Small Business Restructuring (SBR):

• Director remains in control of the business
• Available to companies with liabilities under $1 million
• Often lower cost and faster
• Focused on proposing a repayment plan to creditors

Liquidation:

• Business ceases trading
• A liquidator takes control of the business
• Company assets are sold to repay creditors
• The company is wound up and deregistered

These distinctions are reflected in guidance from the Australian Securities and Investments Commission (ASIC), which emphasise that restructuring is intended to maximise the chances of business survival, while liquidation focuses on finalising the company’s affairs.

When SBR may be suitable

SBR was introduced to help small businesses restructure debts while continuing to operate, making it a more accessible and streamlined option for small businesses. Therefore, it is often a good option where:

• The business is still viable and can continue trading
• Debts are within the $1 million threshold
• Directors want to retain control of operations
• There is a realistic ability to repay part of the debt over time

When liquidation may be necessary

Liquidation provides a structured process to realise assets and distribute funds to creditors, consistent with guidance from ASIC. Liquidation may be necessary where:

• The business is no longer viable
• Debts cannot realistically be repaid 
• There is no prospect of recovery
• Creditor pressure has reached a critical level

Which option is better?

Directors should act early when facing financial distress to preserve restructuring options and improve outcomes for directors. The main question is whether the business is viable or not.

• If the business can continue operating and generate future income, SBR may be a suitable option
• If not, liquidation may be the appropriate next step.

Do you have more questions about our Small Business Restructuring? Read our full guide here

The Importance of Seeking Professional Advice

This article has aimed to provide general information about the difference between SBR and Liquidation, however, every company’s exact circumstances are different. We strongly encourage directors seeking to understand the key differences between Small Business Restructuring and liquidation in Australia, including outcomes, control, and creditor impact to give an insolvency professional like Dissolve to discuss your specific circumstances. Dissolve may even recommend cheaper (or free!) solutions than other insolvency firms.