The Current State of Insolvency in Australia
Australia’s insolvency landscape may have reached a turning point, with ASIC data indicating that new corporate insolvency appointments have started to decline, after reaching a peak for the millennium in 2024-25. Here, Disputes + Litigation Lawyer, Hayley Warren, unpacks what the latest figures mean for businesses, directors and creditors.
Article based on ASIC Issue 39 (March 2026) and AFSA 2024 - 25 Annual Data
Corporate Insolvency: A Record Year, Then a Turning Point
Corporate insolvencies reached record levels in 2024-25, with 14,722 companies entering external administration. This was a 33.2% increase on the previous year and the highest annual figure since 1999-2000.
So far in 2025-26, the position appears to be stabilising. In the first eight months of that financial year, 9,307 companies entered external administration, down 1.3% on the same period last year. This is the first year-on-year decline in three years and may suggest the peak has passed.
However, insolvency numbers remain high, with monthly appointments sitting at around 1,200 to 1,300. The pressure is also spreading across more sectors. Construction and accommodation and food services remain the most affected, but professional services and retail are now also among the top five industries experiencing external administrations.
Despite the numbers moving in the right direction, Law Squared Disputes + Litigation Lawyer, Hayley Warren warns the appearance of professional services and retail in the top five is worth watching closely: “These are sectors with longer lags between financial stress and formal insolvency.”
Small Business Restructuring and the ATO
Small Business Restructuring (SBR) appointments increased sharply in 2024-25 and now make up around 20% of all companies entering external administration.
The SBR process is designed to help eligible small businesses restructure their debts while directors remain in control of the company, rather than moving straight into liquidation. To qualify, a company must have total liabilities of less than $1 million.
However, the ATO is taking a harder line. With it’s total debt book now exceeding $105 billion, including an estimated $46 billion in collectable debt, the ATO is applying greater scrutiny to restructuring proposals.
In particular, the ATO is looking closely at a company’s compliance history, related-party dealings, and whether the process is being used to delay or avoid a pending winding-up application.
The ATO continues to take an assertive approach to ensuring Australians meet their tax obligations, including actively pursuing overdue liabilities through external debt collection agencies such as Recoveriescorp.
In 2024-25, the ATO collected $636.3 billion in net tax, an increase of $25.7 billion on the previous financial year.
The ATO is also increasingly using the full range of powers and resources available to recover unpaid tax, including statutory demands, director penalty notices, garnishee notices and departure prohibition orders. As a result, the ATO recorded its smallest growth in debt during 2024-25 since before the pandemic.
This more active approach has practical consequences for businesses with outstanding tax liabilities. In particular:
Tax debts exceeding $100,000 that are more than 90 days overdue can be reported by the ATO to credit reporting bureaus, which may affect your ability to obtain further finance or credit facilities.
The ATO is less willing to waive interest or approve long-term repayment arrangements without proper scrutiny. Early and constructive engagement with the ATO is critical where liabilities remain outstanding.
SBR eligibility can be lost once liabilities exceed $1 million or a winding-up application has been filed. If tax debt is becoming difficult to manage, engaging an insolvency practitioner early can help preserve options before the position becomes acute.
Personal Insolvency Continues to Rise
While corporate insolvencies appear to be stabilising, personal insolvency continues to rise. One possible reason is that creditors are now seeking to recover shortfalls from individuals who have given personal guarantees.
AFSA recorded its third consecutive annual increase in new personal insolvencies in 2024-25. This included 6,930 bankruptcies, 5,093 debt agreements and 210 personal insolvency agreements. Business-related insolvencies accounted for 28.8% of matters, with business failure the most common cause.
Personal insolvency figures for 2025-26 are tracking in a similar direction, with appointments exceeding 3,000 in each quarter.
Financial stress is also affecting particular groups more heavily. AFSA Chief Executive Tim Beresford has noted that young adults, particularly those aged 30 - 34, are the hardest hit. With limited financial buffers, many are less able to absorb changes in income, expenses and borrowing costs.
The cumulative effect of successive cash rate increases also continues to weigh on household budgets. Hayley say: “Many borrowers are still adjusting to much higher repayments than they had during the pandemic. When you add rising living costs and tighter access to credit, it is clear many people are under far financial pressure than they were a few years ago.”
Personal insolvencies, particularly bankruptcies, are most common in the construction, healthcare and social assistance, and retail trade industries. This coincides with the data reported for corporate insolvencies and is likely a result of directors’ personal guarantees.
Hayley notes: “Directors should keep a clear record of any personal guarantees they have given and review them regularly, especially if their role changes. Personal guarantees often continue after a director resigns, unless the director has been formally released.”
When Insolvency Risk is High, Early Action Matters
Against this backdrop, Hayley’s key message is that early action matters. Whether dealing with tax debt, customer defaults or broader solvency concerns, businesses are best placed when they understand their position, preserve their options and act before pressure escalates.
Hayley’s key recommendations are:
Stay on top of tax obligations. Timely payment and early engagement with the ATO can be the difference between restructuring and liquidation.
Explore restructuring options early. Waiting until insolvency becomes unavoidable can significantly narrow the options available.
Know your counterparties. Conduct due diligence on customers and suppliers. If a counterparty is showing signs of distress, act early before assets are depleted or other creditors move first.
Be proactive with debt recovery. Stay on top of outstanding debts and customer accounts, and act before arrears become hard to recover.
Secure your position. Ensure appropriate guarantees and contractual protections are in place to improve your position ahead of other creditors where possible. This may include charging clauses, security deposits or bank guarantees.
Review your standard terms and credit agreements. Check that your documents provide adeqate security and protection, including charging clauses and indemnity costs provisions where legal action is required.
Assess solvency honestly and regularly. If there is any doubt about whether your business can meet its liabilities as and when they fall due, seek advice early.
For advice on insolvency matters, please reach out to our Disputes + Litigation team at hello@lawsquared.com
