Insolvent Trading in Australia: What ASIC’s 2025-26 Insolvency Data Means for Small Business

Last updated: 27 October 2026. Written by the FreeMyCloud team.

Checked against the ASIC Corporate Insolvency Update Issue 41, ASIC’s Experiencing financial difficulty page, ASIC media releases 26-180MR and 26-181MR, ASIC’s insolvency statistics page and the Corporations Act 2001 on 27 October 2026.

On 1 October 2026 the Australian Securities and Investments Commission published its Corporate Insolvency Update for October 2026, setting out the regulator’s annual insolvency figures for 2025-26. The headline number fell. The detail underneath it matters more to a small business owner: ASIC says the appointments it sees are mostly small companies already under heavy pressure by the time anyone acted. That is what makes insolvent trading a bookkeeping subject as much as a legal one, because the duty is measured against what the directors knew about their own numbers.

What happened: ASIC’s latest figures on company insolvency in Australia

In the October 2026 edition of its Corporate Insolvency Update, ASIC reported that 14,153 companies entered external administration for the first time during 2025-26, down 4% from the 14,722 recorded for 2024-25, against 3,747,130 registered companies as at 30 June 2026.

As a ratio that is 0.38% of registered companies, down from 0.41% a year earlier and still well below the peaks of 0.56% in 2011-12 and 0.53% in 2012-13. The same update named the industries where appointments were most common.

ASIC releases the full series weekly, two weeks in arrears, on its insolvency statistics page.

What the insolvency data means for small business owners

A 4% fall is welcome, but the industry split lands closer to home. Construction at 24.5% and accommodation and food services at 14.7% together made up well over a third of first time appointments. Both are industries where money moves through progress claims, retentions, deposits and thin margins, which is where books a month or two behind stop being an annoyance.

Writing in an ASIC newsroom article published on 25 August 2026, ASIC Commissioner Kate O’Rourke described the pattern plainly: financial difficulty in small companies builds over time, with increasing cash flow pressure, overdue tax or superannuation, unpaid suppliers and reliance on personal funds all common warning signs. By the time many small companies enter external administration, she said, there may be limited value left to preserve.

For builders and venues that puts weight on ordinary disciplines: a reconciled bank, a current creditors list, and job or site level costing. Those are the mechanics behind bookkeeping for builders and construction and bookkeeping for hospitality.

What is insolvent trading, and when does the duty apply?

ASIC’s Experiencing financial difficulty page states that directors have a duty to prevent insolvent trading under section 588G of the Corporations Act 2001. On ASIC’s description, a director must not allow the company to keep operating if it cannot pay its bills when they fall due, or take on new debts when it is already struggling financially.

The trigger ASIC sets out is a knowledge test. A director must act if they knew, or a reasonable director should have known, that the company could not pay its debts when due and payable, and allowed it to keep trading. ASIC adds that this applies even where the director is the only director and shareholder, because the company is a separate legal entity.

What are the signs of insolvency ASIC tells directors to watch for?

ASIC lists warning signs of financial difficulty and notes that difficulty can develop gradually without meaning a company is insolvent. Nearly every item on its list is visible in the accounting file before it is visible anywhere else. ASIC says these signs should prompt a director to review the financial position, monitor it closely, seek appropriate advice and document the steps taken.

How cash flow problems become a solvency question

ASIC frames the shift bluntly: cash flow problems can quickly become serious if a company keeps taking on new debts when it cannot pay existing debts as they fall due, and failing to act can lead to personal liability, disqualification, civil penalties or criminal prosecution.

The six immediate priorities ASIC lists are practical rather than legal: check whether the company can pay its debts when they fall due, seek independent advice early and give the adviser accurate and up to date information, be cautious about new debts, talk to creditors early, get financial records up to date, and keep records of key decisions. Two of the six are record keeping, and a third depends on it, since an adviser can only work from what the file says.

Day to day that means someone reconciling the bank, chasing debtors, keeping accounts payable and receivable current, and recording rather than estimating the BAS and ATO position. Which of those jobs fall weekly, monthly and quarterly is set out in our guide to what a bookkeeper actually does.

Director duties and personal risk when business insolvency is in view

ASIC’s page is explicit that getting help does not move the obligation. Even where a director receives assistance from accountants, bookkeepers or other advisers, it says, the director remains responsible for the decisions they make.

In the ASIC newsroom article, Commissioner O’Rourke set out ASIC’s four expectations from Regulatory Guide 217, its guidance on the duty to prevent insolvent trading: actively monitor company solvency, investigate financial difficulties, obtain advice from suitable professional advisers where necessary, and act in a timely manner. The first of those is a reporting task before it is a legal one.

ASIC also notes what happens afterwards. If an administrator or liquidator is appointed, the director must cooperate, including by providing company books and records, and that administrator or liquidator may review whether the company traded while insolvent and whether records were kept properly. Where the split between a bookkeeper, a BAS agent and an accountant is unclear, our explainer on who does what in Australia sets out where each one’s work stops.

What options exist once a company enters external administration?

ASIC’s page describes four paths for a company that is insolvent or may become insolvent, and says the right option depends on the circumstances, with a registered liquidator, lawyer or accountant able to help identify what may suit.

The small business restructuring process

ASIC says some eligible small companies can work with a registered liquidator to make a plan with creditors, with directors staying in control while creditors decide whether to accept it. In its October 2026 update ASIC suggested that for smaller companies in particular, directors and advisers may wish to consider whether small business restructuring is more appropriate than voluntary administration.

The voluntary administration process

Here ASIC says an independent registered liquidator takes control to assess the company’s position and options, aiming to work out whether the company or its business can be saved. ASIC’s Report 836, released in July 2026, reviewed 3,528 grouped appointments involving 5,020 companies between 1 July 2021 and 30 June 2025. Creditors approved 87% of the deed of company arrangement proposals put to them, and approved deeds accounted for about 44% of appointments reviewed. ASIC found larger companies were more likely to enter a deed, while smaller companies more commonly proceeded to liquidation.

Company liquidation

Where the company cannot be saved, ASIC says an independent registered liquidator takes control so its affairs can be wound up in an orderly way for creditors.

ASIC also points directors to the Small Business Debt Helpline on 1800 413 828, which it describes as free and confidential, Monday to Friday.

Which records let a director act early?

ASIC’s own research shows why this is hard in practice. In media release 26-181MR of 5 August 2026, ASIC said it surveyed 400 small business directors. Almost half named a lack of time and resources, and too much regulation to keep on top of, as barriers, both at 49%, followed by the cost of seeking professional advice at 44%.

The same release reported that 87% had taken information or advice from an accountant in the previous 12 months, while 22% had never sought it from any source, and that 41% looked at their obligations only annually against 23% monthly or quarterly.

Management accounts

Monthly management accounts, with the bank reconciled and payables and receivables aged, are the record that answers ASIC’s first expectation of actively monitoring solvency. Producing them on a fixed cycle is part of ordinary bookkeeping for small business, and the pack itself is covered in business reports.

Cash flow forecast

A rolling cash flow forecast converts a reconciled ledger into the forward view the solvency question actually asks about, namely whether the company can pay debts as they fall due. It draws on the same source data, which is why keeping the file current in cloud bookkeeping software matters more than the brand of software.

ASIC’s wider push was announced earlier in the year. In media release 26-180MR of 5 August 2026, ASIC Chair Sarah Court said there are more than 2.7 million small businesses nationally and that ASIC is committed to clear, practical guidance and targeted action against misconduct that harms small businesses. Companion release 26-181MR launched the Small Business Director Essentials hub quoted above, and Commissioner O’Rourke’s article is published here.

None of this makes a tight month a crisis. ASIC’s position is that financial difficulty does not automatically mean insolvency, and that acting early leaves more options open. What the 2025-26 figures underline is that the companies left with the fewest options generally found out late. Whether the books are kept in house, locally or through outsourced bookkeeping and accounting, what helps is a current file and reports on a schedule. We compared the models in outsourced bookkeeping services compared.

Frequently asked questions

What is insolvent trading?

Insolvent trading is a breach of the director duty in section 588G of the Corporations Act 2001. ASIC describes it as allowing a company to keep operating when it cannot pay its bills as they fall due, or to take on new debts when it is already struggling. The test applies if the director knew, or a reasonable director should have known, that the company could not pay its debts when due.

When is a company insolvent?

The question ASIC puts to directors is whether the company can pay its debts as and when they fall due. ASIC’s guidance tells directors to look at bank balances, overdue debts, bills due soon, tax, superannuation, wages, loan repayments and supplier payments. ASIC is clear that experiencing financial difficulty does not by itself mean a company is insolvent, but that it calls for close attention to the financial position.

How many companies entered external administration in 2025-26?

ASIC reported in its Corporate Insolvency Update published on 1 October 2026 that 14,153 companies entered external administration for the first time during the 2025-26 financial year, down 4% from 14,722 in 2024-25. That represented 0.38% of the 3,747,130 registered companies as at 30 June 2026, compared with 0.41% the previous year.

Can a director rely on safe harbour protection?

ASIC says safe harbour may protect a director from personal liability for insolvent trading where, after suspecting the company may be insolvent, they begin developing a course of action reasonably likely to lead to a better outcome than immediately appointing an administrator or liquidator. ASIC states that professional advice from a registered liquidator, accountant or lawyer must be obtained to rely on it. Whether it is available in a given case is a question for those advisers.

What is phoenix activity, and why does ASIC warn about it?

ASIC warns directors of companies in financial difficulty against transferring company assets or business operations to another entity, or agreeing to arrangements designed to avoid creditors, without independent professional advice. ASIC says phoenix activity can have serious consequences for directors and others involved, including significant penalties and criminal sanctions, and that directors may be approached with offers of quick fixes or informal restructuring services.

Does outsourcing the bookkeeping move a director’s obligations to someone else?

No. ASIC’s guidance states that even where a director receives assistance from accountants, bookkeepers or other advisers, the director remains responsible for the decisions they make and should stay informed and ask questions. FreeMyCloud is not a registered tax or BAS agent and does not lodge. What outsourced bookkeeping changes is the quality and timeliness of the records the director and their registered agent rely on.

This article is general information about Australian bookkeeping and reporting obligations, current as at 27 October 2026. It is not tax, financial or legal advice. FreeMyCloud is not a registered tax agent and does not prepare or lodge tax returns. Rates, thresholds and dates change. Confirm your own position with your registered tax or BAS agent.