Business Turnaround: How Directors Restructure and Recover

Reviewed by Alex Hanley, Chartered Accountant — H&H Tax and Business Advisors
Last reviewed: 13 July 2026

Business turnaround is the structured process of returning a financially distressed but viable business to stability. In Australia it typically combines four things: immediate cash-flow triage, restructuring of costs and debts, negotiation with creditors — including the ATO — and, where informal steps cannot fix the position, formal options such as Small Business Restructuring (SBR) or voluntary administration. Directors who act early may also be protected by the safe harbour in section 588GA of the Corporations Act 2001 (Cth), which can shield them from personal liability for insolvent trading while they pursue a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation.

If you are reading this after another day spent deciding which supplier gets paid and which one gets an excuse, this page is for you. It walks through the full set of company restructuring options in order, from informal to formal: how to judge honestly whether the business is worth saving, the informal levers and their real limits, the legal protection available while you work, and the formal processes that take over when negotiation alone cannot get there.

Want to talk it through now? Call 0468 061 936 for a confidential, no-obligation conversation, or send an enquiry and we’ll call you back.

Is the business viable? The question that decides everything

Every genuine turnaround starts with an uncomfortable question: is this business actually worth saving? Not “do I want to save it” — after years of your life and your name on the door, of course you do — but “can this operation, once its current problems are fixed, pay its way and make a sustainable profit?”

These are the questions that decide it:

• Is the problem the balance sheet or the profit and loss? A fundamentally sound business crushed by historical debt is a restructuring problem — debt can be renegotiated, refinanced or formally compromised. A business that loses money at the operating level, month after month, has a deeper problem that more debt relief alone will not fix.
• Are core customers still buying? A full order book with a cash-flow squeeze is very different from a shrinking market politely walking away.
• Does the gross margin work? After direct costs, is there genuinely enough left to cover a realistic overhead base? If every job loses money, doing more jobs makes things worse.
• Was the cause one-off or structural? A lost anchor contract, a major bad debt, illness, a flood — these can be survived. Structural decline in the industry, or a cost base the market no longer supports, demands bigger surgery.
• Is there enough cash — or accessible funding — to survive the turnaround period? Turnarounds consume cash before they generate it.
• Can you say, specifically, what will be different in twelve months? “Things will pick up” is hope, not a plan.

Be honest with yourself here, because the law already is. Under ASIC’s guidance for directors, a company is insolvent when it cannot pay its debts when they are due, and once insolvency is on the horizon your duties expand to protecting creditors — including your employees. If the honest answer is that the business cannot be made to work, an orderly, lawful close through liquidation protects you far better than trading on and hoping. That is a responsible decision, not a failure.

The informal turnaround levers — and their honest limits

Everything in this section happens before formal insolvency. Informal turnaround is private — no ASIC notification, no public record, no practitioner appointed — and you stay in full control of the company. That flexibility is its strength. Its weakness, which we will be candid about throughout, is that everything depends on agreement: an informal deal binds only the creditors who say yes.

Cash-flow triage

Cash buys time, and time is the raw material of every turnaround. The first week’s work is almost always the same:

• Build a short-range cash-flow forecast — thirteen weeks is the standard — showing every receipt and payment, week by week. This single document tells you how long you have and what must change.
• Chase the debtor book hard. Money owed to you is the cheapest funding you will ever get.
• Stop all discretionary spending, and question every direct debit.
• Prioritise payments deliberately rather than paying whoever shouts loudest.

One triage rule matters more than the rest: do not fund the business with PAYG withholding, GST or superannuation. Unpaid PAYG withholding, net GST and super are exactly the debts the ATO can make directors personally liable for through a director penalty notice (ATO — Director penalty notices). Using them as working capital converts a company problem into a personal one — and, as covered below, unpaid super also switches off your safe harbour protection.

Cost restructuring

Most distressed businesses are carrying a cost base built for a bigger, better year. Durable turnarounds cut structurally, not cosmetically: renegotiating or exiting rent that no longer fits the revenue, closing loss-making sites, product lines or contracts, right-sizing the team (with proper advice on consultation and redundancy obligations), and selling surplus equipment or vehicles — at proper market value, with the proceeds into the company.

ATO debt: engage, lodge, arrange

For most struggling Australian companies the ATO is the largest creditor, and how you engage with it shapes everything else. Two rules:

1. Keep lodging on time, even when you cannot pay. Lodgement and payment are separate obligations. Lodging on time keeps your penalty exposure in the “non-lockdown” category, where formal options can still remit a director penalty; unlodged returns lead to lockdown DPNs that no restructuring removes (ATO — Director penalty notices). Up-to-date lodgements are also a condition of safe harbour and of eligibility for small business restructuring.
2. Put a realistic arrangement in place. The ATO’s help-with-paying framework offers payment plans — most debts of $200,000 or less can be set up through its online services — and interest generally keeps accruing while a plan runs. [VERIFY: current online payment plan threshold and GIC settings against the ATO’s help-with-paying pages, which are bot-blocked — align with the vetted /ato-payment-plans/ page. Same $200,000 figure repeats in the ‘Can I negotiate my ATO debt’ FAQ (frontmatter and visible) — cure all three instances together.] Our ATO payment plans guide covers what the ATO assesses and when a plan is the wrong tool; the wider picture is in our ATO debt guide.

What the ATO will not do informally is forgive tax debt a company is capable of paying. Genuine compromise of ATO debt usually happens inside a formal process — most often small business restructuring, where the ATO votes on the plan as a creditor.

Creditor negotiation

Suppliers, landlords and financiers will often deal — extended terms, a standstill on arrears, a documented catch-up schedule, sometimes a discounted settlement for prompt payment. Creditors who believe you are being straight with them, and who can see a credible plan, generally prefer a workout to a wind-up.

But be clear-eyed about the limits:

• An informal deal binds only those who agree. One aggressive creditor can ignore the workout entirely — and a single creditor owed $4,000 or more can serve a statutory demand, which gives the company 21 days to pay, come to an arrangement or apply to set it aside before it is presumed insolvent under the Corporations Act. [VERIFY: current statutory demand minimum ($4,000 since 1 July 2021) and the 21-day period — ss 459E–459F.]
• There is no moratorium. Nothing in an informal turnaround pauses enforcement the way a formal appointment does. Every creditor remedy stays live the whole time.
• Selective payments can be clawed back. If the company later goes into liquidation, payments that preferred one unsecured creditor over the others in the lead-up can be recoverable as unfair preferences — and quiet side-deals damage the trust the workout depends on.
• Document everything. Handshake arrangements unravel exactly when you need them most.

Refinancing and new capital

Sometimes the fix is financial structure: consolidating expensive short-term debt, borrowing against equipment or invoices, or bringing in equity. Honesty required here too — refinancing a business that loses money at the operating level does not fix it; it buys months and usually adds personal guarantees. Before signing any new facility, understand exactly what you are personally guaranteeing and get independent advice. Guarantees signed in a hopeful January have a way of surfacing in a difficult November.

A warning about “asset protection” shortcuts

Somewhere in this process, someone — often an unsolicited adviser who found you — may suggest moving the business, its equipment or its customer list into a fresh company and leaving the debts behind. This is illegal phoenix activity: creditor-defeating conduct that carries serious civil and criminal penalties for directors and for the advisers who facilitate it, and both ASIC and the ATO actively pursue it (ASIC — Illegal phoenix activity). ASIC’s insolvency guidance specifically warns directors about advisers proposing transfers of assets without payment. A business can sometimes be lawfully sold or restructured — at proper value, with full disclosure, usually through a formal process. That is done in daylight. Anything else, walk away.

Not sure which of these levers fit your situation — or whether any of them are enough? That is exactly the first conversation to have. Call 0468 061 936 — confidential, no obligation — or send an enquiry.

Safe harbour: the legal protection while you work

Safe harbour, under section 588GA of the Corporations Act 2001 (Cth), protects a director from personal civil liability for insolvent trading on debts incurred in connection with a course of action reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator. [VERIFY: s 588GA(1) and the s 588GA(7) definition of “better outcome” against legislation.gov.au.] It exists to resolve the legal tension at the heart of every turnaround: under section 588G, a director who allows a company to incur debts while it is insolvent — or where there are reasonable grounds to suspect it is — can be made personally liable for those debts.

The protection comes with three headline conditions. The course of action must remain reasonably likely to lead to that better outcome — which in practice means staying properly informed, taking advice from an appropriately qualified adviser, and developing and implementing a real restructuring plan. Employee entitlements — including superannuation — must be paid by the time they fall due. And the company must substantially comply with its tax reporting obligations. [VERIFY: s 588GA(4)–(5), including the “substantial compliance” formulation — and the evidential-burden characterisation used in the safe-harbour FAQ (s 588GA(3)).] Fall behind on super or stop lodging, and the legal shelter collapses while you are standing in it. ASIC’s Regulatory Guide 217 sets out its guidance on both the duty and the safe harbour.

Notice how closely those conditions match the turnaround plan described on this page. That is not a coincidence — a safe-harbour-protected turnaround is essentially this page’s turnaround plan done with documentation. So keep the evidence as you go: board minutes, the written plan, the adviser’s engagement and advice, the cash-flow forecasts. Safe harbour is not something you register for — it is a legal position you build by acting this way and keeping the proof. If you think you may need it, get advice before incurring the debts you are worried about, not after.

Full guide: safe harbour is covered in depth in our insolvent trading guide, including the s 588GA conditions, the evidence rules and how the protection ends.

When informal isn’t enough: your formal restructuring options

Some positions cannot be negotiated out of: a creditor is already enforcing, the debts are simply too large for any realistic payment schedule, or the safe-harbour conditions (super paid, lodgements current) can no longer be met. That is not the end of the turnaround — it is the point where the turnaround changes tools. Australian law provides a ladder of formal processes, each suited to a different depth of trouble:

1. Small business restructuring (SBR) — for companies with total liabilities of $1 million or less, tax lodgements up to date and employee entitlements paid. The directors stay in control of the business while a restructuring practitioner helps propose a plan that, if creditors accept it, compromises unsecured debts — and binds the creditors who voted no. It is the closest formal process to a continued turnaround.
2. Voluntary administration (VA) — for companies that don’t fit SBR or need an immediate, enforceable pause. An independent administrator takes control, a statutory moratorium stops most creditor enforcement, and creditors vote within roughly 20–25 business days — often on a deed of company arrangement that lets the business continue.
3. Liquidation — where the business is not viable in any form. An orderly, lawful wind-up: assets realised, creditors paid by statutory priority, the company deregistered, and your personal exposure contained rather than compounding.

Here is how the informal path compares with the two formal rescue processes:

Sources: Corporations Act 2001 (Cth), Parts 5.3A and 5.3B; ASIC — Insolvency for directors. [VERIFY: SBR eligibility criteria against Corporations Regulations 5.3B.03 — already tracked as a pre-launch verification item.]

The pattern worth noticing: each rung down the ladder trades director control for creditor-binding power. Informal keeps you in charge but binds nobody; SBR keeps you trading but requires eligibility; VA hands over control but stops enforcement immediately. Choosing the right rung — and the right moment to step onto it — is the single most consequential decision in a turnaround, and it is precisely the decision worth making with advice rather than under a deadline.

One timing interaction deserves special mention. If a non-lockdown director penalty notice arrives during your turnaround, you have 21 days from the date on the notice in which paying the debt in full, appointing a small business restructuring practitioner or an administrator, or beginning winding up will remit the penalty (ATO — Director penalty notices). A DPN can force the informal-versus-formal decision on the ATO’s timetable instead of yours — one more reason to make the assessment before the notice arrives.

Choosing the rung — and the moment — is the decision that matters most, and it’s easier with someone who has walked directors through it before. Call 0468 061 936 — confidential, no obligation — or send an enquiry and we’ll call you back.

Warning signs: how directors know it’s time

ASIC’s insolvency guidance for directors lists the classic indicators of insolvency risk. Tick these honestly:

• Ongoing trading losses
• Poor or worsening cash flow
• Incomplete or unreliable financial records
• Increasing total debt — new borrowings servicing old ones
• Unpaid creditors outside trading terms, and juggling which invoices get paid
• Solicitors’ letters, demands or judgments
• Suppliers moving you to cash-on-delivery
• Overdraft at its limit; the bank declining further support
• Overdue taxes and superannuation
• Disputes among directors or shareholders about the way forward

None of these alone proves insolvency — for the formal insolvency test itself, see corporate insolvency explained. Three or four together mean the informal window is closing — and ASIC’s own advice is to get professional accounting or legal advice as early as possible, because early advice increases the chance the business survives. The cruel arithmetic of turnaround is that the options shrink as the delay grows: the director who acts at the first signs can usually choose from every lever on this page; the director who waits for the statutory demand often cannot.

The turnaround plan, step by step

Every effective turnaround — informal or formal — follows the same spine. This is also, not coincidentally, the conduct that supports a safe harbour position:

1. Stabilise. Stop the bleeding: build the 13-week cash-flow forecast, secure payroll and superannuation, halt discretionary spending, and chase debtors. Nothing strategic works while the cash position is unknown.
2. Diagnose. Work out why the business is in trouble — balance sheet or P&L, one-off or structural — and test viability honestly. This is the point to engage an appropriately qualified adviser and give them complete information.
3. Plan. Put the turnaround plan in writing: the actions, the numbers they must produce, the milestones, and the date by which each must be hit. A written plan is both a management tool and your safe-harbour evidence.
4. Negotiate. Take the plan to the people whose agreement it needs — the ATO, the landlord, key suppliers, the financier — and document every arrangement reached.
5. Execute. Make the cuts, complete the refinance, sell the surplus assets at proper value, keep lodgements current and entitlements paid. Plans fail in execution far more often than in design.
6. Monitor and escalate. Review actuals against the plan weekly. If the milestones are being hit, keep going. If the plan has stopped being realistically achievable, escalate to the formal ladder promptly — waiting past that point is exactly what safe harbour does not protect.

Next steps: have the conversation while every option is still open

Restructure Partners is an Australian specialist restructuring and insolvency advisory. We work with directors nationwide to assess the position honestly — viability, the informal levers, safe harbour, and the formal options — and to build a plan that fits the facts rather than the fear. We do not perform formal insolvency appointments: where small business restructuring, voluntary administration or liquidation is the right path, we connect you with ASIC-registered practitioners who can act, and we help you prepare so the process starts from strength.

Turnarounds succeed when the business is viable, the action is early, and the plan is real. Whether yours meets that test is exactly what a first conversation is for.

• Call 0468 061 936 — confidential, no obligation — and if the honest answer is that you don’t need a formal process, or you don’t need us, we’ll tell you straight.
• Or send an enquiry — confidential, and we’ll call you back.

Frequently asked questions

What is business turnaround?

Business turnaround is the process of returning a financially distressed but still viable business to stability. It usually combines immediate cash-flow control, cost and debt restructuring, and negotiation with creditors such as the ATO, supported by professional advice. Where informal steps cannot fix the position, turnaround extends to formal options like small business restructuring or voluntary administration.

What is the difference between informal restructuring and small business restructuring (SBR)?

Informal restructuring is a private negotiation — the company agrees new terms with the creditors who are willing to deal, and nothing binds creditors who refuse. Small business restructuring is a formal process under Part 5.3B of the Corporations Act: a restructuring practitioner helps the company propose a plan, and if creditors accept it, the plan binds unsecured creditors including those who voted against it. Informal deals are cheaper and private; the formal process delivers certainty.

Do informal arrangements bind all creditors?

No. An informal arrangement only binds the creditors who agree to it. Any creditor who refuses can keep enforcing — including issuing a statutory demand or starting court proceedings — even while other creditors are cooperating. That is the core limitation of informal turnaround, and it is why companies with one or two aggressive creditors often need a formal process instead.

What is safe harbour and does it protect directors?

Safe harbour, under section 588GA of the Corporations Act 2001, can protect a director from personal civil liability for insolvent trading on debts incurred in connection with a course of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. It only applies while its conditions are met — including that employee entitlements (superannuation included) are being paid and tax lodgements are up to date — and the director bears the burden of showing it applies.

How do I know if my business is still viable?

A business is worth turning around when the underlying operation can generate sustainable profit once its current problems — excess debt, an oversized cost base, underpricing, or a one-off shock — are fixed. Honest tests include: are core customers still buying, does the gross margin cover a realistic cost base, and would the business make money if the historical debt were dealt with? If the answer to those is no, an orderly formal process usually protects you better than trading on.

Can I negotiate my ATO debt as part of a turnaround?

Yes — engaging with the ATO is a normal part of a turnaround. The ATO offers payment plans (most debts of $200,000 or less can be set up through its online services), and it may remit some interest in genuine hardship cases. What the ATO does not do informally is release a company from tax debt it can pay. Larger compromises of ATO debt generally happen through formal processes such as small business restructuring, where the ATO votes as a creditor.

How much does a business turnaround cost?

It depends on the size of the business and the depth of the problem. An informal turnaround is usually the cheapest path — the cost is advisory fees, which scale with the work involved, so ask for a written estimate up front. If the position needs a formal process, practitioner fees typically run about $10,000–$30,000 for a small business restructuring and $30,000–$80,000 for a voluntary administration. Treat every figure as a typical range, not a quote.

When should a company move from informal turnaround to a formal process?

When informal steps cannot realistically fix the position: key creditors will not agree or one is already enforcing, the company cannot keep employee entitlements paid or tax lodgements current (which also ends safe harbour protection), new debt is accruing faster than old debt is being repaid, or a director penalty notice has started a 21-day clock. At that point small business restructuring, voluntary administration, or liquidation are the structured paths — and deciding early preserves value.

Does a turnaround guarantee the business will survive?

No. No adviser can guarantee a turnaround, and you should be wary of anyone who promises one. Turnarounds succeed when the underlying business is viable, the directors act early while cash and goodwill remain, creditors are engaged honestly, and the plan is executed with discipline. Acting early is the single biggest factor within a director’s control — the longer insolvency pressure runs, the fewer options survive.

Sources: Corporations Act 2001 (Cth), ss 588G–588GA, Parts 5.3A and 5.3B (legislation.gov.au) · ASIC — Insolvency for directors · ASIC — RG 217: Duty to prevent insolvent trading · ASIC — Illegal phoenix activity · ATO — Help with paying · ATO — Director penalty notices

This page is general information only, not legal or financial advice, and Restructure Partners is not affiliated with the ATO or ASIC. Whether an informal turnaround, safe harbour, restructuring or liquidation fits your company depends on its specific circumstances — eligibility, timelines, costs and outcomes all vary. Please seek advice from a qualified professional about your own position before acting.