The impact of insolvency: what accountants need to address earlier

The more important question is not whether insolvency happens, but whether the conversation starts early enough to change the outcome.

Insolvency is not just a business issue

There were 11,644 personal insolvencies in Australia in the 2024–25 financial year. Many of these are directly linked to business failure through personal guarantees, tax liabilities or director exposure.

For accountants, this is critical. Financial distress rarely sits neatly within a company structure. It often flows through to the individual behind the business.

That places accountants at the centre of both the commercial and personal consequences. The ripple effects are wider than many realise. When a business fails, the impact extends far beyond the balance sheet.

Employees lose jobs. Suppliers face unpaid invoices. Creditors experience cash flow disruption. Directors can face personal financial pressure and reputational damage.

Accountants are also affected. Firms can lose long-standing clients and future fee income. In some cases, questions are raised about whether earlier warning signs were visible. Even when those questions are unfair, they can affect trust and professional relationships.

Why the conversation happens too late

Most accountants recognise the early signs of financial stress. The issue is not awareness. It is timing.

Insolvency is often avoided as a topic because it is uncomfortable. It can feel like delivering bad news or raising the possibility of failure. There is also uncertainty around what advice to give when a situation becomes serious.

As a result, conversations are delayed.

By the time formal advice is sought, the available options are often more limited.

The warning signs are usually visible

Financial distress rarely appears overnight. It develops gradually. Common indicators include persistent tax debt, directors personally funding operations, tightening supplier terms, shrinking margins, or delayed lodgments.

In many cases, these signs are visible months before a crisis point. Accountants are often the first to see them, which means they are in a position to influence what happens next.

What accountants can do earlier

Early intervention does not always require formal insolvency. In many situations, the most effective step is starting the conversation. That might involve:

• Preparing forward cash flow forecasts

• Reviewing the cost base

• Negotiating with creditors

• Exploring strategic options such as restructuring or sale

These actions are far more effective before financial distress becomes critical.

When formal processes are required

Where informal measures are no longer sufficient, structured options exist.

For companies, these include small business restructuring, voluntary administration and liquidation. For individuals, options may include bankruptcy, debt agreements or personal insolvency agreements.

These processes are managed by registered liquidators and trustees, who operate under strict regulatory oversight.

Importantly, once appointed, their duty is to creditors and the integrity of the process.

Choosing the right practitioner matters

Australia has around 650 to 700 registered insolvency professionals, including approximately 640 registered liquidators and just over 200 registered trustees. They vary significantly in experience, background and approach.

For accountants, selecting the right practitioner can materially influence outcomes for the client.

Practitioners differ across a range of factors, including:

• Location – local presence versus national reach

• Firm size and structure – large firms, boutique practices or sole practitioners

• Type of work – restructuring and turnaround versus investigations and liquidations

• Industry experience – familiarity with sectors such as construction, hospitality or retail

• Scale of matters – SME versus larger or more complex engagements

• Recent experience – current and recent appointments in similar situations

• Communication style – commercial, technical or more relationship-driven

• Cultural fit and language – particularly relevant for certain client groups

• Approach to stakeholders – how they engage with directors, creditors and advisers

These differences matter. The right practitioner can help stabilise a situation and preserve options. The wrong fit can create friction, increase stress for the client and limit outcomes.

When considering a referral, accountants should be comfortable asking a few key questions:

• What similar matters have you recently worked on?

• What options do you see in this situation?

• How do you typically work with accountants and other advisers?

• How will you communicate with the client and key stakeholders?

• What is your approach to balancing commercial outcomes with regulatory obligations?

• What are the likely costs and how are they structured?

Taking the time to make an informed choice can significantly improve both the client experience and the eventual outcome.

Supporting better connections

One of the challenges for accountants is simply knowing who to call.

There are now platforms and resources available that provide a free, central database of registered insolvency practitioners, allowing accountants to search, compare and connect with professionals based on location, experience and suitability for the matter.

In addition, the National Insolvency Helpline provides a free and confidential service where accountants can sense-check a situation, understand potential options and, where appropriate, connect their clients with the right support. Directors can also access this service directly.

Used properly, these tools are not about replacing professional judgement. They are about helping advisers make more informed decisions at the point where it matters most.

A broader responsibility

It is also important to recognise that insolvency is not just a financial issue. It is a human one.

Directors, employees and families can all be affected. Accountants are often a trusted voice during these periods and can play an important role in guiding clients toward both professional and personal support.

The real takeaway

Financial distress is not rare. It is part of the business lifecycle.

For accountants, the role is not just compliance or reporting. It is recognising when a client is under pressure and being prepared to start a conversation that many would prefer to avoid.

Handled early, that conversation can preserve options, protect outcomes and ultimately support better results for both the client and the adviser.

Because insolvency is not just about businesses that fail. It is about whether the right conversation happens early enough to change what comes next.

Gareth Gammon, founder and CEO, Insolvency Australia