AVA Advisory insight report

Corporate insolvency & credit risk trends | August 2025

Australian business conditions worsened in August 2025, with formal insolvencies continuing their steep climb and ATO enforcement actions intensifying. New ASIC data shows company collapses are on track to eclipse FY24 records, while the ATO has ramped up its use of Director Penalty Notices (DPNs), garnishee notices, and tax debt disclosures.

At the same time, small business restructuring (SBR) appointments reached record highs, prompting ASIC and ARITA to call for structural reforms.

Here's what directors, accountants, and business advisers need to know: 

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National insolvency volumes remain high

More than 1,300 companies entered voluntary administration in July, based on the ASIC data released mid-July, continuing the upward trend. National insolvency volumes for FY25 are now 26.8% higher year-on-year, with Victoria experiencing the steepest increases, followed by NSW and Queensland.

Top contributing factors: 

• Declining consumer demand
• Elevated operating costs (wages, energy, rent)
• Ongoing credit tightening
• Reduced tolerance from tax authorities

"We're seeing insolvency levels not just return to pre-pandemic norms - they're surpassing them. The underlying structural fragility, particularly in construction, is now clear." - Jason Preston, Chair, McGrathNicol (The Australian, July 2025).

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Sector in focus: construction, retail & hospitality

Insolvencies remain heavily concentrated in: 

• Construction: driven by material cost volatility and subcontractor disputes
• Retail: impacted by reduced consumer discretionary spending
• Accommodation & food services: facing seasonal slowdowns and higher input costs

CreditorWatch reports rising late payments in these sections, with average days late reaching 14+ days for retail and food operators.

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Small business restructuring (SBR) surges

ASIC's Report 810, released in July, confirms that SBR's are gaining momentum as a formal alternative to liquidation:

• 3,388 SBR appointments commenced between July 2022 and December 2024
• Most occurred in construction (27%) and accommodation/food services (23%)
• Over 80% of proposed plans were accepted by creditors

However, ARITA and ASIC warn that: 

• Phoenix activity and poor pan disclosures remain concerns
• More robust director guidance and practitioner oversight is required
• SBR plan approvals are being scrutinised more closely, especially by the ATO

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ATO enforcement tightens in August

The ATO has become significantly more aggressive in enforcing overdue business tax debt. This includes:

• Increased issuance of Director Penalty Notices (DPNs) 
• More garnishee notices applied directly to trading accounts
• Disclosure of tax debt to credit reporting bureaus
• Rejection of repayment plans deemed unrealistic or repetitive

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Can you rework an existing ATO repayment plan in August 2025? 

The short answer? 

Yes, but only under strict new conditions. The ATO is much less likely to accept revised or reworked payment plans than in prior years.

What's changed? 

As of August 2025, the ATO is: 

• Rejecting payment plans offering less than 30 cents on the dollar
• Denying revised plans from directors with poor compliance histories
• Refusing extensions to previously defaulted agreements
• Prioritising businesses that are actively restructuring via SBR or Safe Harbour

What improves your chances?

• Offering to repay 30% or more of the tax debt
• Demonstrating improved BAS and superannuation compliance
• Submitting realistic cash flow forecasts
• Partnering with a registered practitioner to lodge a formal restructure plan

Note: interest on unpaid ATO debt is no longer tax deductible (as of July 1), adding further cost pressure on businesses delaying action.

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Regulatory watch

ASIC flags SBR system risks

While effective in many cases, the SBR framework needs clearer accountability, oversight, and creditor protections, particularly around phoenix activity and plan transparency.

ARITA pushes broader reform

ARITA continues to call for:

• A full overhaul of the Corporations Act
• Clearer protections for directors acting in good faith
• Better tools for creditors navigating SBR plans

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August/September risk indicators

Across AVA Advisor's casework and external appointments, the following signs were most associated with business distress:

• Directors receiving unexpected DPNs or garnishee actions
• Sudden change in supplier payment terms (COD or 7-day terms)
• Use of non-bank or short-term high-interest loans
• Leasing non-renewals or early exits
• Businesses applying for multiple trade accounts within 30-60 days

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What's ahead?

• Insolvency appointments are expected to peak in mid-September, consistent with seasonal trends
• RBA is forecast to hold interest rates, offering minimal relief as business costs remain high
• Retailers unable to secure holiday stock finance may enter administration early
• Treasury will release further stakeholder feedback on insolvency reform proposals

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AVA Advisory recommendations

1. Review your ATO debt position and history of payment plan compliance
2. Monitor clients in construction, retail, and hospitality for working capital stress
3. Flag multiple recent credit applicatons or changes in trade terms
4. Encourage directors to seek early advice, before receiving a DPN

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Need confidential guidance? 

AVA Advisory supports businesses and advisers through formal restructuring, safe harbour guidance, and ATO debt negotiations. Early advice gives you more options.

Book a free consultation or call us directly on 1300 181 220.