Financial distress does not necessarily mean a business is insolvent. However, when cash-flow tightens, debts mount or creditors lose patience, delaying action can narrow the options that remain.
Those pressures are real. Alares Credit Risk Insights[1] reported that Australian insolvencies in August 2026 exceeded the corresponding level in 2025, while winding-up applications reached a new monthly high. In addition, more than 37,000 businesses were subject to Australian Taxation Office (ATO) tax debt reporting.
Gold Coast company directors and business owners under financial pressure should understand the warning signs, their legal obligations and the options available before the position deteriorates further. Speaking with an insolvency lawyer early can also help clarify the legal implications of those options.
What does it mean when a business is in financial distress
Warning signs can include:
- continued trading losses
- overdue tax obligations
- unpaid employee entitlements
- difficulty obtaining finance
- creditors pursuing payment
- insufficient cash to meet upcoming liabilities
The critical question is whether the company has crossed into insolvency. Under section 95A
of the Corporations Act 2001 (Cth), a company is solvent if it can pay all its debts as and
when they become due and payable. The test therefore focuses on the company’s ability to
pay its debts on time, rather than simply whether its assets exceed its liabilities.
What should you do when your business is in financial
distress?
1. Review your financial position
The Australian Securities and Investments Commission (ASIC) recommends acting straight
away when a business is facing financial trouble.
Bring your financial records up to date and review debts, cash-flow and money owed to the
business. This can help establish whether the business faces a temporary cash-flow
problem or deeper concerns about its ability to pay debts when they fall due.
Business lawyers can provide legal advice where those financial concerns also raise
questions about directors’ duties, creditor action or insolvency.
2. Understand your duties as a director
ASIC says directors must comply with their legal obligations when a company is in financial
trouble, including preventing insolvent trading. Under section 588G of the Corporations Act,
directors have a duty to prevent a company from incurring debts where it is insolvent, or
would become insolvent by incurring them, in circumstances where there are reasonable
grounds for suspecting insolvency.
A liquidator may pursue a director personally for compensation for loss or damage resulting
from insolvent trading. An insolvency lawyer can advise a director on their legal position
when insolvency is suspected.
3. Don’t ignore tax debt
The ATO can disclose eligible business tax debts to credit reporting bureaus where, among
other requirements, at least $100,000 is overdue by more than 90 days and the business is
not effectively engaging with the ATO. A notice of intent generally gives the business 28
days to act.
Directors may also face personal exposure through director penalty notices for unpaid PAYG
withholding, GST and super guarantee charge. A Gold Coast business lawyer can advise
local directors on the legal implications of tax debt and director penalty notices.
What happens if a creditor serves a statutory demand?
If debts remain unresolved, creditor enforcement can escalate quickly. One of the more serious steps a company may face is a statutory demand.
A creditor owed at least $4,000 can serve a statutory demand under section 459E of the Corporations Act. A company generally has 21 days to comply or apply to have the demand set aside. For a set-aside application, the application and supporting affidavit must be filed, and copies served on the creditor, within that 21-day period.
Failure to comply can create a rebuttable presumption of insolvency supporting a winding-up application. The 21-day period for making a valid set-aside application is strict, making immediate advice from an insolvency lawyer important.
Can a financially distressed business keep trading?
Financial distress does not automatically mean a business must close. Depending on the circumstances, there may be options that allow the company to continue trading while directors work to improve its financial position.
Safe harbour can provide directors with protection from civil liability for insolvent trading for debts incurred directly or indirectly in connection with a qualifying course of action that is reasonably likely to lead to a better outcome for the company, provided the statutory requirements are met.
Businesses may also be able to negotiate payment arrangements with creditors before formal insolvency proceedings become necessary. Business lawyers can assist with the legal aspects of creditor negotiations where appropriate.
If creditor negotiations and a viable turnaround strategy are not enough, directors may need to consider formal restructuring or insolvency processes.
What formal restructuring and insolvency options are available
Eligible companies may consider small business restructuring. This allows directors to
remain in control while working with a registered restructuring practitioner on a plan for
dealing with creditors. Total liabilities must not exceed $1 million, among other eligibility
requirements.
Other options include voluntary administration, where an administrator takes control of the
company and assesses its financial position and future. Liquidation involves a liquidator
taking control of the company, realising its assets and distributing available funds to
creditors.
The appropriate option depends on the company’s assets, liabilities, cash-flow and
prospects of recovery. An insolvency lawyer can help directors understand the legal
implications of the available pathways.
For Gold Coast businesses operating in the building and construction industry, the choice of
insolvency pathway can also have licensing consequences.
What does insolvency mean for a Gold Coast building licence?
Construction generates 22.2% of Gold Coast output compared with 14.1% across
Queensland, according to economy.id, making the consequences of insolvency particularly
relevant to local building businesses.
CHART 1: Construction as a share of economic output
| Region | Construction share of output |
| Gold Coast | 22.2% |
| Queensland | 14.1% |
Source: economy.id, 2023/24.
Under Queensland law, a director involved in certain insolvency events can become an
excluded individual and be unable to hold a QBCC licence for three years. Two separate
relevant insolvency events may result in permanent exclusion.
Small business restructuring does not itself involve appointing an administrator or liquidator,
although a licensed company must still satisfy the QBCC’s minimum financial requirements.
A Gold Coast business lawyer can advise on the legal considerations surrounding financial
distress alongside the specific QBCC requirements that may apply.
Where can Gold Coast businesses get help?
Eligible Queensland small businesses experiencing or at risk of financial hardship can
access free financial counselling, including debt support and assistance with negotiations.
Legal advice from an insolvency lawyer may also be appropriate where the company is
struggling to pay debts or creditors have commenced recovery action.
ARITA also warns directors to be cautious about inappropriate advisers offering purported
solutions to financial problems. Advice to transfer company assets for less than market value
may result in a creditor-defeating disposition under the Corporations Act.
While financial distress and insolvency are not the same thing, directors should not wait for a
creditor to determine what happens next. Early action can leave more scope to consider
creditor negotiations, safe harbour, restructuring or other appropriate options. Speaking with
a Gold Coast business lawyer can help directors understand their legal position before
deciding how to proceed.
If your Gold Coast business is facing financial distress, QBM Lawyers can explain
your legal obligations and help you assess the options available. Contact our team to
arrange a confidential discussion about your situation.
Frequently Asked Questions
Yes. A business can have cash-flow problems without being insolvent. The legal test focuses on whether the company can pay its debts as and when they become due and payable.
No. Depending on the circumstances, options may include creditor negotiations, safe harbour, small business restructuring or voluntary administration.
Potentially. Insolvent trading, director penalty notices and personal guarantees are among the circumstances that can expose a director personally. An insolvency lawyer can advise on how these rules apply to a director's particular circumstances.
Act immediately. A company generally has 21 days to comply or apply to have the demand set aside, and strict requirements apply to a set-aside application. An insolvency lawyer can advise on the available response.
Yes. An insolvency lawyer can advise on your legal position and assist with negotiations and disputes involving creditors.
