Author
Marcus PetrovicDirector & Head of Client Strategy
For many business owners, financial trouble is rarely caused by one bad decision. More often, it is a series of setbacks that arrive before the business has a chance to recover from the last one. That was exactly what happened here.
For many business owners, financial trouble is rarely caused by one bad decision. More often, it is a series of setbacks that arrive before the business has a chance to recover from the last one. That was exactly what happened here.
A Rural Supermarket Faced One Challenge After Another
The business operated a supermarket in regional New South Wales. As the main retail outlet for the local community, it wasn't simply another grocery store. Local families depended on it for everyday essentials, which made keeping the business operating even more important.
Unfortunately, the timing could hardly have been worse. The company was incorporated in May 2020, just as COVID 19 restrictions changed the way businesses across Australia operated. Building a new customer base became far more difficult when people were limiting travel and changing their shopping habits.
The challenges had actually started even earlier. The 2019 and 2020 bushfires affected customer movement throughout regional areas and disrupted supplier networks before the business had properly established itself. Instead of building momentum, the owners found themselves dealing with problems outside their control.
Just as trading conditions began to improve, another major setback arrived. The regional mice plague in 2022 destroyed more than 60% of the supermarket's stock. Sales dropped by around 70%, and insurance offered no relief because the losses fell outside the policy cover.
By this stage, staying open had become the priority. Growing the business had to wait while the director focused on simply getting through one difficult period after another.
When Tax Debt Starts Snowballing
Those trading conditions eventually flowed through to the company's tax position. By the time professional advice was sought, the business owed $143,425.73, including $139,914.41 to the Australian Taxation Office and $3,511.32 to iCare for Workers Compensation obligations.
The debt wasn't the result of one missed payment. Reduced income, damaged stock, disrupted operations and issues with previous accountants all contributed to tax obligations falling behind. As lodgements slipped and liabilities increased, the outstanding balance became harder to bring under control.
This is a situation many directors find themselves in. They continue working hard every day, customers are still coming through the doors, but the historical debt keeps growing in the background until it feels impossible to catch up.
If that sounds familiar, getting advice sooner rather than later can make a significant difference. Understanding your available Tax Debt Solutions early gives you more opportunities to deal with the problem before your options begin to narrow.
Looking Beyond Liquidation
One of the biggest misconceptions directors have is that high tax debt automatically means the business has reached the end of the road. In reality, the size of the debt is only one part of the picture. What matters just as much is whether the business can realistically trade successfully once that debt is addressed.
That question became central to this case. Despite everything the supermarket had experienced, it was still operating and still serving the local community. The focus shifted from looking at where the business had been to whether it had a realistic future.
The numbers supported that view. If the company entered Liquidation, creditors were expected to receive nothing. Under a proposed Small Business Restructure, creditors were expected to receive approximately 19.76 cents in the dollar instead.
That changed the conversation completely. Instead of choosing between a struggling business and no business at all, creditors were presented with an option that delivered a better commercial outcome while allowing the company to continue trading.
Fixing the Business Behind the Debt
Reducing debt on its own doesn't solve anything if the same problems continue after the restructure. The business needed to demonstrate that meaningful operational improvements had already been made and that future trading could support the proposed repayment plan.
One of the first changes involved appointing a new accounting firm. Together, they introduced a structured compliance calendar to keep BAS lodgements and tax obligations up to date. That gave the director far greater visibility over reporting deadlines and reduced the risk of falling behind again.
Stock management was also completely reviewed. Forecasting tools were introduced to improve purchasing decisions, reduce unnecessary waste and make sure inventory better reflected actual customer demand. For a business that had already lost a significant amount of stock during the mice plague, this was an important step towards improving profitability.
The supermarket also automated much of its ordering process through back office software. Less time was spent correcting manual mistakes, which allowed staff to focus more attention on customers and day to day operations.
The director didn't stop there. New marketing partnerships were established with Spar Australia, local schools and community organisations to encourage more people back into the store. These initiatives weren't designed as quick fixes.
They formed part of a practical plan to improve trading performance over the long term.
When the Restructuring Practitioner reviewed the financial forecasts, the projected cash flow and proposed contributions were considered realistic and achievable. That assessment gave creditors confidence that the business had a genuine opportunity to meet its obligations under the plan.
Why the Business Qualified for a Small Business Restructure
Not every financially distressed business can enter a Small Business Restructure. Directors must satisfy specific eligibility requirements before a proposal can even be put to creditors.
In this case, the company met those requirements when the restructuring proposal was submitted. More importantly, the business was still actively trading and there was clear evidence that operational improvements had already been implemented rather than simply promised.
That distinction matters. Creditors are generally looking for evidence that a business has addressed the issues that created the debt in the first place. A proposal backed by practical changes is often far more persuasive than one based only on optimistic forecasts.
How the Small Business Restructure Worked
Once eligibility had been confirmed, a formal proposal was presented to creditors. The plan reduced the company's total debt, representing a reduction of approximately 77%. Rather than requiring an immediate lump sum payment, the business committed to monthly contributions of $1,350 over a period of 24 months, funded from future trading profits.
After allowing for the Restructuring Practitioner's remuneration of $4,050, a total of $28,350 remained available for distribution to creditors, considerably better than the estimated return of zero cents in the dollar if the company had entered Liquidation.
For directors considering this option, it is worth understanding exactly how a Small Business Restructure works before making any decisions. Eligibility requirements, timing and creditor approval all play an important role in determining whether the process is suitable for your business.
Why Creditors Supported the Proposal
When creditors vote on a Small Business Restructure, they are not deciding whether a business deserves another chance. They are deciding which option is likely to return the best financial outcome.
In this case, the answer was fairly straightforward. If the company entered Liquidation, creditors were expected to receive nothing.
That difference is why the Restructuring Practitioner recommended the proposal be accepted. The business had already taken practical steps to improve the way it operated, and the repayment plan was supported by realistic cash flow projections rather than optimistic assumptions.
For creditors, it represented a better commercial outcome. For the director, it created an opportunity to deal with historic debt without closing a business that continued to serve its local community.
What Other Business Owners Can Learn from This Case
Every business is different, but there are several lessons from this case that apply to many directors facing financial pressure. Tax debt rarely appears overnight. It usually builds over months or years while business owners focus on keeping staff employed, paying suppliers and maintaining day to day operations. By the time the debt reaches six figures, many assume there is nothing left to do except close the business.
Viability matters just as much as the amount of debt. A business carrying significant ATO Debt is not automatically beyond saving. If there is a realistic plan to improve profitability, manage future obligations and continue trading, there may still be restructuring options worth exploring.
Creditors often look beyond the headline debt figure. They want to know whether the proposal offers a better outcome than Liquidation. When a business can demonstrate practical improvements and realistic financial projections, that can significantly improve the chances of a proposal being accepted.
And, don't underestimate the value of asking for advice early. Many directors wait until creditor pressure becomes overwhelming before speaking with an adviser. By then, some of the available options may no longer be possible.
If you're already dealing with growing tax debt, it's worth reading our guide on 9 tips for managing business tax debt. Small changes made early can often put you in a much better position if financial pressure continues.
Small Business Restructure Is About More Than Reducing Debt
It is easy to focus on the headline figure in this case. Reducing debt from $143,425 to $32,400 is certainly significant, but that number only tells part of the story. The more important outcome was that a viable rural business continued operating. Local jobs were preserved, the community retained an essential supermarket, and creditors received a return that would not have been available through Liquidation.
None of that happened because the debt simply disappeared. It happened because the director addressed the underlying problems, improved the way the business operated and committed to a realistic repayment plan that creditors were prepared to support.
Cases like this are a reminder that financial distress does not always lead to the same outcome. Two businesses may owe similar amounts to the ATO, but their options can be very different depending on how early they seek advice and whether the business remains commercially viable.
Is a Small Business Restructure Right for Your Business?
If your business is struggling with ATO Debt or increasing creditor pressure, don't assume that Liquidation is your only option. Every situation is different, and the right solution depends on your financial position, your eligibility and whether the business has a realistic path forward.
A Small Business Restructure is designed for viable businesses that need breathing room to deal with historic debt while continuing to trade. When appropriate, it can deliver a better outcome for both directors and creditors than closing the business altogether.
You can also learn more about the process in our guide to the benefits of a Small Business Restructure and see how other Australian businesses have successfully restructured their tax debt.
If you're unsure what options are available, speak with the team at Mackay Goodwin. We help directors understand where they stand, assess whether a Small Business Restructure is appropriate, and provide practical advice before financial pressure becomes harder to manage. The earlier you seek advice, the more options you're likely to have. Contact Mackay Goodwin today for a confidential discussion about the next steps for your business.
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