This article first appeared in ARITA news on 30 June 2026.

For many small business directors, financial difficulty builds over time – with increasing cash flow pressure, overdue tax or superannuation, unpaid suppliers, and reliance on personal funds all common warning signs.

ASIC’s focus is on helping directors recognise those warning signs early, understand their obligations and take timely, informed action. This matters because delay can increase losses for creditors and employees, reduce the options available to the company, and expose directors to greater personal risk.

ARITA members play an important role in that work. Registered liquidators, lawyers and accountants are often the people directors turn to, or should turn to, when financial pressure arises. Their advice can help directors understand whether the company can continue to trade, whether restructuring options are available, and what steps need to be taken if the company cannot meet its debts.

ASIC’s message to directors is straightforward: do not ignore warning signs, hoping things will improve. Financial difficulty should prompt early action, not avoidance.

What the data shows

ASIC’s insolvency data highlights why early action is so important. The appointments, reported through this data, show year-on-year that the majority are small companies, already under significant financial pressure, with limited assets, substantial liabilities and little prospect of a return to unsecured creditors.

An unfortunate reality familiar to insolvency practitioners is by the time many small companies enter external administration, there may be limited value left to preserve. Not every company in financial difficulty can be saved. But directors are more likely to have meaningful options if they act before the company has run out of cash, exhausted creditor goodwill or incurred debts it has no realistic ability to repay.

ASIC expectations and guidance for directors

ASIC’s Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors is the key guidance for directors and their professional advisors on understanding and fulfilling the director duty to prevent insolvent trading.

RG 217 outlines ASIC’s expectations of directors across four areas to meet their duty to prevent insolvent trading:

• actively monitor company solvency;
• investigate financial difficulties;
• obtain advice from suitable professional advisers where necessary; and
• act in a timely manner.

The guidance also explains ASIC’s expectations where directors are considering whether they may be eligible to access safe harbour protection under the Corporations Act 2001.

These expectations go to a central issue in practice: whether directors recognise financial difficulty early enough to take appropriate action. Where they do not, the consequences can be significant – both for directors and for creditors, employees and the broader market.

Early action preserves options

Early action gives directors the best chance of preserving options for the company, creditors and themselves.

The small business restructuring process is a great example of this – it may provide a rescue pathway for small companies but is more likely to be useful where directors seek advice before the company’s situation has deteriorated too far. A restructuring process that may have been realistic earlier may no longer be viable if debts have increased, assets have been depleted or key creditors have lost confidence.

Delay can also increase the personal risks for directors. A problem that may have started as a company cash flow issue, can quickly become a serious personal legal and financial risk, if directors continue to incur debts when there is no realistic prospect the company will be able to repay them. Unfortunately, this happens all too often with directors thinking they can turn things around without seeking professional advice.  

ASIC’s focus on small businesses directors experiencing financial difficulty

ASIC is increasing its focus on helping small business directors act early in response to financial difficulty. That means giving directors clearer, more practical information about the warning signs of financial difficulty, the obligations that apply to them, and the steps they should take before options narrow.

This work includes developing practical roadmaps, online learning modules and targeted guidance to help small business directors understand their obligations at key decision points. These resources are intended to support directors as they start, run and, where necessary, close or restructure a company. They are also intended to complement, not replace, the role of professional advisers.

ASIC wants directors to take stock of the company’s financial position, seek advice from appropriately qualified advisers, avoid taking on debts the company has no realistic basis to repay, and be wary of quick fixes that simply buy time without addressing the underlying problem.

ARITA members are central to this work. You often see what happens when directors wait too long: fewer options, reduced asset value, greater creditor harm and increased personal risk for directors. You also play an important role in helping directors understand that seeking advice early is not a sign of failure – it is part of responsible management.

Through this new work, ASIC’s focus is on helping those conversations happen earlier. We want small business directors to recognise the warning signs, understand their obligations and act while there are still options.

Early action will not save every company. But as ARITA members will know, delay rarely improves the position. Acting early gives directors the best chance of preserving restructuring options, reducing their personal exposure, and limiting the harm to employees and creditors if the company cannot continue.