In 2021, Australia introduced the Small Business Restructuring (SBR) program with the intent to provide financially distressed SMEs with a lifeline — a way to stay in control, restructure debt, and avoid the heavy blow of liquidation.
But fast forward to today, and we’re seeing a troubling trend:
For many small businesses, the SBR process is becoming just another form of financial handcuffing, largely due to how Deeds of Company Arrangement (DOCAs) are implemented.
Let’s break it down.
The Promise vs. The Reality
The SBR program was meant to be a middle ground between formal insolvency and informal workouts — giving directors a way to work with creditors while retaining control of the business.
In theory, great.
In practice? It’s often just a slow-burn version of bankruptcy.
Here’s why.
The Problem with Active DOCAs
A typical DOCA (Deed of Company Arrangement) lasts 2–3 years. During this time, the company is technically under external administration, and the director is severely limited in what they can do.
Most notably:
- They can’t borrow new funds
- They can’t refinance existing debts
- Credit score and reputation are negatively impacted, making new supplier terms or partnerships difficult
- The company must legally refer to itself as “Subject to Deed of Company Arrangement”, which sends the wrong signal to the market
So instead of being a fresh start, the company is stuck in a state of limbo — alive, but handcuffed.
How Creditors’ Trusts Offer a Better Path
There is a workaround — but it’s not being used enough.
If the insolvency practitioner converts the business before entering administration into a creditors’ trust, something powerful happens:
- The business exits administration faster
- The creditors become beneficiaries of the trust, not the company
- The DOCA can be wholly effectuated — finalised — at the time of administration
- The company no longer needs to display “Subject to DOCA”
- Most importantly, the company’s credit file will not show “external administration” status moving forward
In plain English: the business can return to normal commercial activity faster, rebuild its credit profile, and attract the funding it needs to grow.
Why This Matters
Small businesses are the backbone of the Australian economy, and yet the tools designed to help them are, in some cases, making recovery harder than it needs to be.
When directors are boxed in for 2–3 years under a restrictive DOCA — unable to borrow, rebuild, or grow — we’re not helping them recover.
We’re delaying their failure.
What Needs to Change
- Greater use and awareness of creditors’ trusts as a restructuring tool
- Education for directors before entering administration on the long-term implications of an active DOCA
- More proactive, strategic engagement from insolvency practitioners — not just compliance-driven checkbox processes
Final Thought
The intention behind the SBR program is sound. But the execution — particularly around the use of DOCAs — is creating a hidden crisis.
Restructuring shouldn’t be a slow death sentence. It should be a rebirth.
If you’re a business owner, advisor, or accountant working with SMEs in distress, understanding the difference between a DOCA vs. a creditors’ trust could be the difference between stagnation and recovery.
Written by Peter Wyszenko
