Webinar Recap - When Businesses Break: Disputes, Insolvency and Director Risk in 2026

Insolvency,Business Law: 02 March 2026

Author: Nicole Jee - Our People

Our webinar panel shared practical tips for directors navigating a tight operating environment - highlighting early advice, clearer oversight and proactive financial management.

With elevated insolvency activity and increased regulatory pressure this year, Australian businesses are operating in a demanding environment. Rising costs, cashflow strain and firmer ATO action mean directors need clear visibility over their company’s financial position and risks.

At Aitken Partners’ recent breakfast seminar on Disputes, Insolvency and Director Risk, panellists discussed the current climate, the disputes that tend to emerge when financial pressure builds, and the key risks directors face in 2026. (Webinar Recording Below)

The session highlighted a practical message: businesses can successfully navigate this environment with early advice, strong oversight and a proactive approach to their finances - particularly regarding tax obligations.

Understanding the Current Environment

Insolvency levels remain higher than pre‑COVID averages, with construction and hospitality still topping the statistics. More recently, transport, manufacturing and retail have also shown notable increases, often creating flow‑on effects through supply chains. Directors are often stretched between running the business day‑to‑day and managing financial obligations. Where margins tighten, disputes can surface more quickly, tax debts accumulate faster, and directors can run out of room to manoeuvre.

Common early indicators that a business is facing mounting pressure include:

• Consistent cashflow challenges
• Creditors shortening payment terms or declining supply
• Tax debts growing or superannuation falling behind
• Internal shareholder or partner disagreements becoming more frequent
• Directors personally funding the business or relying heavily on related‑party loans

The ATO’s Increasing Activity: What Directors Need to Know

A major theme in 2026 is the increased momentum and enforcement activity by the ATO. After several years of flexibility during and after COVID, there has been a gradual return to regular enforcement activity.

Key points from the panel:

• Director Penalty Notices (DPNs) have risen sharply, with tens of thousands of them issued over the past financial year.
• Garnishee notices and warning letters are far more frequent, and overdue tax debts can now trigger credit reporting notifications once they exceed $100,000 and remain unpaid for more than three months.
• Payment arrangements are harder to negotiate, often requiring a substantial upfront payment, and relatively short repayment term.
• Interest and penalties are rarely remitted outside a formal restructuring process.

Staying up to date with lodgements - even where payment is not possible - remains one of the simplest and most effective ways to preserve options.

Disputes That Emerge During Financial Pressure

Commercial disputes become more common as businesses feel the strain. The panel highlighted examples of disagreements which were once manageable can escalate quickly when money is tight:

• Contract breaches and unpaid invoices
• Shareholder or partnership “business divorces”
• Disputes between directors, creditors and related entities
  

The recommendation was clear: assess disputes early and obtain legal advice before positions harden. In many cases, litigation funding or conditional fee arrangements can help preserve cashflow while pursuing legitimate claims.

Higher Scrutiny, Narrower Timelines

Company directors are now subject to greater scrutiny, with faster‑moving consequences, particularly where the ATO is involved.

Key risks include:

• Insolvent trading exposure
• Lockdown DPNs, especially where superannuation lodgements are late
• Personal guarantees that may be triggered in a downturn
• Repayment demands on director loan accounts
• Preference claims in a subsequent liquidation
  

Directors of high‑activity or multi‑entity groups should also be mindful of how inter‑company transactions, drawings and historical compliance behaviour may be viewed in a restructuring or insolvency scenario. Anything messy or poorly documented could become a major issue down the line.

Restructuring Options: Pathways That Keep Businesses Trading

Two key restructuring pathways continue to support viable businesses:

1. Small Business Restructures (SBRs): A streamlined option where directors remain in control while proposing a compromise to creditors. Success depends on:

• Unsecured debts below $1 million

• Lodgements being up to date

• Superannuation being paid in full
  

The ATO often play a central role in the success of SBRs as they are often the major creditor. Although more difficult as compared with a few years ago, the ATO has supported workable proposals that demonstrate compliance and a realistic pathway to repayment.

SBRs, if suitable for a company, present as an attractive restructuring options for directors, as they enable them to remain in control of the Company during the process.

2. Voluntary Administration (VA) and DOCAs: Best suited to more complex situations or where SBR criteria are not met. While more involved, DOCAs can still deliver strong outcomes and provide additional flexibility for longer‑term repayment plans.

The Key Takeaway: Early Advice Creates Better Outcomes

Even with increased pressure, directors can still navigate these challenges successfully by acting early, maintaining visibility over financial performance, and engaging advisers before options run out.

Up‑to‑date lodgements, timely legal and accounting advice, and a willingness to address problems head‑on will help companies manage risk and preserve business value even when trading conditions are challenging.

Click below to watch the webinar recording:

Get in touch if you have any questions for the panel:

• Moderator, Nicole Jee, Principal Lawyer, Aitken Partners
• Alex Nicol, Managing Principal, Aitken Partners
• Sam Merrylees, Senior Associate, Aitken Partners
• Jason Stone, Partner, PKF Ph: 03 9679 2211, E: jstone@pkf.com.au