Author
Marcus PetrovicDirector & Head of Client Strategy
When ATO debt starts growing, many business owners assume Liquidation is only a matter of time. That is not always the case. For one Richmond hospitality business, a Small Business Restructure reduced almost $257,000 in debt to just over $90,000, gave creditors a better return than Liquidation and allowed the venue to keep trading. It is a good example of why getting ATO debt help early can open up options that may no longer be available if you wait too long.
The business is a cocktail bar in Richmond, Victoria. The company was incorporated in March 2021 and was still trading when the restructuring proposal was put to creditors. The directors wanted to keep the business operating, but they needed a way to deal with debt that had built up through several years of events that were largely outside their control.
A Venue That Opened at the Worst Possible Time
The business committed to its lease and venue fit out before COVID 19 changed the hospitality industry. Between February and December 2021, substantial money was invested into shipping container construction, outdoor decking and an upper level development. During that same period, Melbourne's lockdowns meant the venue could not generate any income.
When the venue eventually opened in December 2021, trading conditions were still difficult. Capacity restrictions limited customer numbers, staffing shortages affected daily operations and revenue was well below what the business had forecast.
Recruitment became another hurdle. The venue relied heavily on international students, but border closures reduced the available workforce. Even when customers returned, finding enough staff to service them remained a challenge.
One Setback After Another Put Pressure on Cash Flow
Hospitality businesses do not get a break from expenses when customers stop coming through the door. Rent still needs to be paid. Suppliers still expect payment. Tax obligations continue to fall due.
In December 2023, the business faced another setback when an unexpected licensing issue forced the venue to stop trading while the matter was resolved. Income stopped immediately, but the fixed costs continued. To keep the business alive, the directors borrowed more money while they worked through the issue.
At the same time, lower foot traffic made it harder to recover. As cash became tighter, ATO debt continued to grow until the company owed $256,996 across four creditors. The debt was not the result of one bad decision. It built up after lockdowns, staffing shortages, interrupted trading and ongoing operating costs combined over several years.
Why a Small Business Restructure Was Considered
By the time advice was sought, the directors were not asking how to erase the past. They wanted to know whether the business still had a future if the historical debt could be brought back under control.
Looking at the numbers, there were good reasons to believe it could. From March 2026, the venue was expected to benefit from overlapping AFL, NRL, NBL and A League seasons. Those periods had consistently delivered higher patronage and better cash flow.
The directors had also changed the way they managed the business. A separate bank account was created specifically for GST and PAYG obligations so money could be set aside throughout the quarter instead of trying to find the full amount when BAS became due.
Every fortnight, they sat down with their accountant to review cash flow, tax obligations and business performance. Those meetings gave them a much clearer picture of where the business stood and helped identify problems before they became larger ones.
These improvements were already in place before the restructuring proposal was assessed. They showed the business was operating differently and gave the Restructuring Practitioner confidence that the cash flow forecasts were achievable.
If you are considering whether your own business may qualify, our guide to the Benefits of a Small Business Restructure explains how the process works and who may be eligible.
- The Proposal Put to Creditors
- The company met the eligibility requirements for a Small Business Restructure when the proposal was submitted. The proposal included:
- Reducing total debt from $256,996 to $90,100.
- An upfront contribution of $10,000 once the proposal was accepted.
- Monthly repayments of $8,000 over 12 months.
- Restructuring Practitioner remuneration of $15,900.
- A total distribution of $90,100 to creditors.
- Under the proposal, creditors would receive 35 cents in the dollar.
Why Creditors Accepted It
When creditors receive a restructuring proposal, they usually compare it with one alternative. They ask what they are likely to receive if the business goes into Liquidation instead.
In this case, the answer was clear. The estimated return under Liquidation was 0 cents in the dollar. Under the Small Business Restructure, creditors were expected to receive 35 cents in the dollar.
For creditors, the decision was fairly straightforward. Receiving part of what they were owed was a far better outcome than receiving nothing at all.
For the directors, the restructure created something equally valuable. It gave them the opportunity to keep trading without carrying a debt burden that the business was never realistically going to repay in full.
If your business is dealing with growing tax debt, our guide to Tax Debt Solutions for Business Owners explains several options that may be available before financial pressure becomes overwhelming.
What Other Hospitality Businesses Can Learn
Very few hospitality businesses could have absorbed years of lockdowns, staffing shortages, licensing delays and weaker customer numbers without feeling financial pressure.
This case shows why it is important to look beyond the debt itself. The business still had customers. It still had a trading location. It still had opportunities to increase revenue during busy sporting seasons. What it could not carry was the weight of historical debt created during several exceptionally difficult years.
The changes made by the directors also mattered. Better cash flow management, regular financial reviews and setting aside GST and PAYG throughout the year all helped demonstrate that the business was capable of operating more sustainably.
For accountants, this is often where an early referral makes the biggest difference. If a client is still trading but tax debt continues to grow, referring them before creditor action escalates may preserve restructuring options that disappear once the business becomes unviable.
When Should You Get Advice?
Many directors wait until they receive legal action or believe there is no way back. By then, the number of available options may be much smaller. If your business is regularly falling behind on BAS payments, relying on new borrowings to pay existing debts or finding it harder each month to keep up with ATO obligations, it is worth getting advice sooner rather than later.
A Small Business Restructure is not suitable for every company. The business must meet the eligibility criteria and demonstrate that it can continue trading under a workable restructuring plan. Assessing that properly requires experienced advice based on the company's financial position.
If these warning signs sound familiar, our article on 10 Signs Your Business Needs Restructuring outlines some of the common indicators that it may be time to seek professional advice.
Looking at Your Options Before Liquidation
This Richmond hospitality business reduced its debt by 65%, continued trading and delivered a better return to creditors than Liquidation would have achieved. That outcome was possible because the directors sought advice while there was still a viable business to preserve.
If you are looking for ATO debt help or your business is under pressure from growing tax liabilities, creditor demands or cash flow problems, Mackay Goodwin can help you understand your options. Whether the right solution is a Small Business Restructure, Safe Harbour, Voluntary Administration or Liquidation, getting advice early gives you more opportunity to make informed decisions while more options are still available.
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