Insolvency trends, updated ASIC guidance and the Small Business Restructuring Regime: What Directors Need to Know

Australia's insolvency landscape has undergone significant changes in recent years, marked by pandemic-driven reforms and significant economic challenges. This article examines current insolvency trends and evaluates the effectiveness of the Small Business Restructuring (SBR) regime introduced in 2021. It also covers important updates to Australian Securities Investments Commission (ASIC) guidance.

Authors: Simon Mitchell GAICD (Senior Policy Adviser, AICD), Chris Johnson (Partner, Wexted Advisors) and Chris Sequeria GAICD (Partner, Wexted Advisors)

Recent data from the ASIC shows insolvency appointments at all-time highs, surpassing both pre-pandemic levels and the post GFC high (2008-2013) of around 10,000 appointments per year. At the same time the use of the Small Business Restructuring regime has grown exponentially and there are indicators the insolvency safe harbour is increasingly being called upon by directors of larger businesses experiencing financial challenges. 

Current administration and insolvency landscape   

In FY24 there were 11,053 external administration appointments and FY25 appears on track to reach at least 15,000. Consistent with recent years, the sectors of construction, accommodation and food services and retail represent the majority of insolvency appointments across the country, reflecting continued pressures on those industries. The appointments also appear to be in part a continued unwind following the lower appointments over the COVID years.

The Australian Tax Office (ATO) has also significantly increased recovery efforts to recoup outstanding tax debts by issuing over 26,000 Director Penalty Notices (DPNs) for approximately $4.5bn in FY24, compared with over 17,000 DPNs for approximately $2.8bn in FY23.  A particular focus for the ATO is the recovery of Superannuation Guarantee Charges (SGC), with approximately 8,700 DPNs issued relating to SGC owed by 6,500 companies in FY24.

ASIC updates key insolvency guidance for directors

At the start of December 2024 ASIC issued an updated Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (RG 217). RG 217 is the key guidance from ASIC for directors and their professional advisors on understanding and fulfilling the director duty to prevent insolvent trading.

The changes to RG 217 are in two key areas:

• Updated guidance on how a director should meet their director’s duty to prevent insolvent trading, including monitoring solvency, investigating financial difficulties, seeking professional advice, and acting in a timely manner; and
• New guidance for a director seeking to utilise the insolvency safe harbour under the Corporations Act 2001 (the Safe Harbour). The Safe Harbour provides a director with  protection from liability associated with the insolvent trading duty subject to meeting certain requirements. The AICD tool on the Safe Harbour is available here.

RG 217 strengthens ASIC expectations that there are four principles that directors should observe to meet their duty to prevent insolvent trading:

1. Actively monitor company solvency;
2. Investigate financial difficulties;
3. Obtain advice from professional advisers where necessary; and
4. Act in a timely manner.

In respect of the Safe Harbour there is new guidance in RG 217 on what a director should be doing in order to rely on safe harbour protection, when safe harbour protection will not be available,  what is meant by “reasonably likely” to deliver a “better outcome” for the company and the impact of the safe harbour protections on the general director’s duties under the Corporations Act. RG 217 now includes a number of hypothetical practical examples to assist directors in accessing the Safe Harbour. 

Importantly, it is clear from ASIC’s guidance that professional advisers play a key role in ensuring directors’ compliance with their insolvent duty obligations and separately access to the Safe Harbour. We encourage directors who are grappling with questions on the financial viability of a particular business or organisation to obtain external advice as early as possible. 

The AICD welcomes ASIC’s updates to RG 217. The AICD was a key industry proponent for the introduction of the Safe Harbour in 2017 and supported its retention during the independent review of its operation in 2021. We remain strongly of the view that the Safe Harbour is a vital mechanism to encourage directors to consider how to turnaround financial struggling businesses rather than prematurely placing them into voluntary administration or liquidation. 

Small business restructuring (SBR) regime

The SBR regime, which commenced in January 2021, represented a significant shift in Australia's insolvency framework in that it is focused on simplifying turnaround options for small businesses. Designed for businesses with liabilities under $1 million, it promised a director-controlled, streamlined restructuring pathway to avoid traditional voluntary administration for financially distressed but commercially viable businesses.

The SBR got off to a slow start with around 70 appointments in the first 12 months. However, there has been increasing uptake of the regime, which is now on track for over 2,000 appointments in FY25, representing over 20 per cent of all administration appointments as of December 2024.

How the SBR process works at a high level is outlined in the accompanying box. This Treasury fact sheet also provides an overview of the SBR regime.

Due to the nature of small business debt the Australian Tax Office (ATO) is frequently the largest creditor during the SBR process. To date the ATO has been a supporter of the SBR regime with it reporting in 2023 that it was voting in support of 91 per cent of plans.

As with meeting director duties and Safe Harbour, there is a key role played by external advisors under the SBR regime. Again, directors who observe their business entering financial difficulties are encouraged to seek advice at the earliest opportunity.