Business-related personal insolvencies surge

Business-related personal insolvencies are increasing, reflecting a structural shift in the financial distress cycle, according to data from the Australian Financial Security Authority (AFSA).

In December last year, 344 individuals linked to business activity entered personal insolvency, up 38 per cent year-on-year. This marks the fourth consecutive December increase.

Over the past four years, the share of personal insolvencies involving business-related individuals has risen from 27 per cent to more than 32 per cent. The AFSA says this points to a structural shift rather than a one-off spike.

Bankruptcy accounts for the majority

Bankruptcies accounted for more than 60 per cent of total personal insolvencies. The number increased from 363 cases in December 2022 to 651 in December 2025. Growth in debt agreements was moderate, while Personal Insolvency Agreements (PIAs) remained low.

“The December figures reflect a broader pattern, with personal insolvency increasingly occurring later in the business distress cycle, rather than as an immediate response to new shocks,” said Emma Mos, partner at Jirsch Sutherland.

“This isn’t about sudden failure. What we’re seeing is the personal impact of prolonged business stress. For many business owners, years of pressure lead to personal insolvency as historic liabilities – including tax debts – materialise.”

Mos said enforcement action by the Australian Taxation Office and other creditors, higher interest rates and year-end and early-year obligations are limiting options once personal exposure increases.

Pressure across sectors and states

Business-related personal insolvencies are recorded across construction, retail trade, transport, postal and warehousing, health care and social assistance, and other services. Mos said the trend aligns with the firm’s current case load.

AFSA data shows increases across most states. NSW and Victoria have recorded annual increases since 2022. Queensland reported one of the largest rises over the period. WA rose from a lower base, while SA and Tasmania were above December 2022 levels.

Mos cited the case of a sole trader in residential construction who expanded contract volumes without incorporating. As financial pressure increased, the business was unable to pay suppliers. Within six to 12 months, trade debts and personal guarantees led to personal bankruptcy, placing personal assets, including the family home, at risk.

She added that year-end obligations are now colliding with early-year obligations, including BAS statements due at the end of February and legacy tax debt, alongside higher interest rates.

“Once personal exposure intensifies, options narrow quickly,” she said. “Seeking advice early can make a material difference to outcomes.”

• This story was originally published on Inside Small Business.
• Further reading: Retail insolvencies exceed pre‑Covid levels, tipped to rise further this year.

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