Australian Insolvency Levels Remain Elevated as SME Directors Face Tighter Restructuring Conditions

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IRT Advisory provides practical insolvency, restructuring and turnaround advice to Australian SME company directors, including guidance on Small Business Restructuring where a company is viable, eligible, and able to put forward a credible proposal to creditors.
Australian corporate insolvency levels remain elevated, although the latest ASIC data suggests the surge has moderated. ASIC's insolvency statistics released on 15 June 2026 show that 12,819 companies entered external administration or had a controller appointed for the first time in the 2025-26 financial year to 31 May 2026. This compares with 13,413 for the same period in 2024-25.

While the total number of insolvencies remains high, the current data shows a notable change in the use of Small Business Restructuring (SBR) [https://irtadvisory.com/services/small-business-restructuring/]. ASIC's latest statistics record 1,569 first-time restructuring appointments for the 2025-26 financial year to 31 May 2026, compared with 2,697 for the same period in the prior year. This suggests that although SBR remains an important formal restructuring option for eligible small companies, it is not currently increasing at the same rate as broader insolvency activity.

IRT Advisory, a boutique insolvency and restructuring practice based in Melbourne but operating throughout Australia, says the figures are consistent with what many practitioners are seeing in the market: more directors are under financial pressure, but fewer companies are suitable candidates for SBR by the time advice is sought.

"Small Business Restructuring can be a very effective tool, but it is not available in every case," said Andrew Poulter, Principal at IRT Advisory. "A company still needs to satisfy the eligibility requirements, have maintained a good tax compliance history including all lodgements being up to date, deal with employee entitlements, and put forward a proposal that creditors, including the ATO, can take seriously. The ATO in particular expects companies eligible for Small Business Restructuring to 'put their best foot forward' with proposals offered for consideration. This is important because there are no second chances if a proposal is rejected."

The pressure on SME directors is being driven by a combination of increased enforcement activity by the Australian Taxation Office, higher operating costs, higher interest rates, employee demands for higher wages, weak consumer demand, creditor enforcement and legacy liabilities accumulated during and after the COVID period. For many businesses, cash-flow problems that were once managed informally have now reached the point where creditors are taking more active recovery steps.

The Australian Taxation Office continues to play a central role in the majority of small business insolvency matters. Where tax debts have accumulated over time, directors may also face Director Penalty Notices, garnishee action, statutory demands or winding-up proceedings. In that environment, early advice is critical.

"Directors often wait too long because they are hoping the next debtor payment, the next job or the next payment arrangement will solve the problem," Mr Poulter said. "Sometimes the business can recover, but delay often makes the position worse. By the time a statutory demand or winding-up application arrives, some of the better restructuring options may already have been lost."

ASIC's earlier Report 810 confirmed that SBR appointments grew strongly after the regime's slow initial uptake. The report found that 3,388 SBR appointments were made between 1 July 2022 and 31 December 2024, compared with only 82 appointments in the earlier review period. It also found that 87% of restructuring plans sent to creditors during the review period were approved, and that 92% of finalised plans had been fulfilled.

However, the more recent statistics show why the current position should be described with care. In the 2024-25 financial year to 31 May 2025, restructuring appointments represented about 20.1% of companies entering external administration or controller appointments for the first time. In the 2025-26 year to 31 May 2026, that proportion had fallen to about 12.2%.

IRT Advisory says this reinforces the need for directors to assess their position before the business becomes too distressed to restructure. "To use SBR properly, directors need to move while there is still a viable business to save," Mr Poulter said. "The process is not simply a way to reduce debt. It requires a realistic assessment of the company's future trading position, its compliance history, its creditor profile, and its capacity to offer and meet the terms of any proposed plan, including ability where needed to raise funds from borrowings and/or related parties. Although the maximum term of a restructuring plan is 3 years, increasingly, creditors are seeking an early lump sum dividend to avoid the additional risk of default when a plan involves payment by instalment.

The latest ASIC data shows construction remains the largest sector for first-time external administrations in the 2025-26 financial year to 31 May 2026, followed by accommodation and food services, other services, retail trade, professional, scientific and technical services, transport, administrative and support services, and manufacturing. These industries continue to face pressure from rising costs, labour shortages, tax arrears and changing consumer demand.

For directors, the practical message is clear: the earlier financial distress is addressed, the more options may be available. Those options may include informal restructuring, payment arrangements, Small Business Restructuring, voluntary administration leading to a deed of company arrangement, or, where the business is no longer viable, an orderly liquidation process.

IRT Advisory assists directors, accountants and legal advisers with small business restructuring, voluntary administration, creditors' voluntary liquidation, business turnaround services [https://irtadvisory.com/services/business-turnaround/] and broader insolvency advice. The firm focuses on practical, hands-on guidance for SME directors facing financial distress, with a strong emphasis on early assessment and commercially realistic outcomes.

For more information, visit https://irtadvisory.com/

About IRT Advisory:

Established in 2009, IRT Advisory [https://www.google.com/maps?cid=15241566224871919023] is a boutique insolvency, restructuring and business turnaround firm based in Melbourne, Australia. The firm assists company directors, creditors and other stakeholders to deal with financial distress in a practical and commercially sensible way. Led by experienced insolvency practitioners, IRT Advisory provides hands-on advice across corporate insolvency, restructuring, business recovery and debt resolution.

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