This explains our law reform project seeking to have a combined regime for personal and corporate insolvency for small corporate businesses, or SMEs.[1]
It arises in part from the various recommendations of the 2023 Parliamentary Joint Committee Report on Corporate Insolvency (2023 PJC report) and our own research interests. There has been no real government response to that report. While that is disappointing, we remain committed to pursuing selected recommendations from the report concerning SME insolvency.
Comments on this project are invited.
The issue
Australia’s constitutional history has dictated an insolvency framework that separates personal and corporate regimes – the Bankruptcy Act 1966 (Cth) for individuals and the Corporations Act 2001 (Cth) for companies. For small businesses, this separation can misalign with reality. While small businesses often use a corporate structure, directors routinely provide personal guarantees, use personal funds for business purposes, and face director-imposed personal tax liabilities.
The consequence is a blurred boundary between personal and business debts, yet business owners, and creditors, must navigate two distinct insolvency pathways, procedures and regulators, often at the height of financial distress. Policy bodies at home, and abroad (UNCITRAL,[2] World Bank, IMF[3]) have long urged for integrated corporate and personal insolvency reform.
Recent Australian developments – including the transfer of personal insolvency policy to Treasury, in May 2025 and AFSA’s June 2025 submission to the Productivity Commission’s “five pillars” inquiry – underscore a momentum toward reform. We presented on the topic before an international insolvency colloquium at Sydney Law School on 5 November 2025 and are anticipating other such presentations, and publications.
Public remarks by Assistant Minister Dr Andrew Leigh[4] in his speech at the AFSA Summit on 18 November 2025 appeared to recognise the challenges posed by the separation of corporate and personal insolvency frameworks for small business owners. At his invitation, we jointly asked whether such a proposal would be considered – “Is the government intending to progress the consolidation of corporate and personal insolvency into a single legislative framework?” The answer reiterated the government’s position:
[the government] “recognises that small business owners experiencing financial distress may need to navigate both systems. The government is currently considering the [2023 PJC Report], including its key recommendation to undertake a comprehensive review of Australia’s corporate and personal insolvency laws. The PJC inquiry also recommended that the review explore options to improve the effective operation of the two systems”.
While the reply was carefully framed and offered no indication of specific reform directions, it nonetheless reinforces the importance of continuation of our work on this project.
We propose a practical, proportional model: a specialist small business insolvency practitioner authorised to coordinate or consolidate linked personal and corporate proceedings for the same enterprise; tailored independence and dispute resolution rules; and streamlined court/jurisdictional pathways. The objective is coherence, reduced cost, complexity and duration and improved outcomes for creditors, business owners and their families.
Necessarily however, we need data and practitioner insights to determine the nature and extent of the problem, as the 2023 PJC Report recommends. While our research proposal appears sound in principle, the realities of practice may reveal a more nuanced story. For example, industry practices around when personal guarantees are sought, and the circumstances in which they are actually enforced, may mitigate the perceived lack of connection.
We are also guided by other recommendations made by the PJC, for example as to the need for a systems-based approach to the various insolvency pathways. Corporate and personal insolvency both lend themselves to this form of analysis, particularly as to their points of intersection and friction. Central to any systems analysis is a clear articulation of the purpose of any reform as recommended by the 2023 PJC Report. Yet, as Lo Pucki observes,
“for the most part, the systems are not designed; they simply grow up over time. Courts, legislatures, and administrative agencies occasionally attempt to make changes in them, but nearly always incrementally and often without success”.[5]
This underscored the challenge of pursuing coherent, purpose-driven reform within an environment shaped largely by historical separation.
Also, data on the intersection between corporate and personal liabilities and assets, held separately by ASIC and AFSA, is essential to support evidence-based reform. The 2023 PJC Report highlights this gap and draws on the 2019 IMF Working Paper, The Use of Data in Assessing and Designing Insolvency Systems,[6] which warns that legislating “in the dark” risks producing reforms that are inefficient or even counterproductive.
Key Factors
The key factors informing our research to date are:
- 2017/2018 The World Bank issues two reports considering small business insolvencies. The first, entitled ‘Report on the Treatment of MSME Insolvency’ (2017 considering the challenges, needs and responses to MSME insolvency. The second, entitled ‘Saving Entrepreneurs, Saving Enterprises: Proposals on the Treatment of MSME Insolvency’ (2018) setting forth a proposal for a framework for effective treatment of SME insolvency, regardless of the legal form of the business.
- IMF 2019 Working Paper, The Use of Data in Assessing and Designing Insolvency Systems, WP/19/27
- OECD Economics Department Working Papers No. 1738, Enhancing insolvency frameworks to support economic renewal, Christophe André and Lilas Demmou; OECD Economics Department Working Papers No. 1309; Insolvency Regimes and Productivity Growth: A Framework for Analysis, Müge Adalet McGowan and Dan Andrews.
- 2021 UNCITRAL Legislative Guide on Insolvency Law: Part 5: Insolvency Law for Micro and Small Enterprises
- 2021 Part 5.3B SBR Corporations Act 2001 process commences, seeking to assist small corporate businesses
- July 2023: PJC Report makes several recommendations concerning both personal and corporate insolvency;
- May 2025: personal insolvency is transferred to Treasury under Assistant Minister Dr Andrew Leigh, to sit alongside corporate insolvency.
- June 2025: AFSA raises the separate regimes as a productivity issue in its submission to the Productivity Commission’s 5 Pillars inquiry.
- June 2025: Amanda Bull’s PhD thesis focusing on the Part 5.3B small business restructuring regime was conferred – making several recommendations for reform including in relation to the inability to compromise personal guarantees as part of the Restructuring Plan.
- 5 November 2025: our joint presentation to a joint Sydney/ANU Colloquium attended by local and international academics and lawyers.
- 18 November 2025: attendance at the AFSA Summit at which Dr Leigh spoke of the “particular concern” raised by the PJC Report being the “interface between corporate and personal insolvency” where “in many small businesses, the financial affairs of the individual and the company are closely intertwined”, and at which event he invited any law reform questions.
- 16 December 2025: Bull, Amanda& Murray, Michael (2025) Seasonal financial distress: Not just a tough time for consumers? QUT Centre for Justice Briefing Papers, 91, pp. 1-4.
- 18 December 2025: in response to our question, Dr Leigh gives a non-committal reply.
- 19 December 2025: Productivity Commission issues its 5 Pillars Report – Creating a more dynamic and resilient economy. It does not address AFSA’s submission but does refer to Australia’s reduced business dynamism – “with fewer firms entering and exiting, the economy is not getting a productivity bounce from new firms bringing new products and innovative approaches”: p 5.
- The World Bank is to conduct its B-Ready review of Australia’s business laws in 2026, including corporate insolvency.
Why This Matters – and Where Our Project Is Heading
Small business owners frequently experience financial distress in ways that cut across corporate and personal boundaries yet must navigate two separate legal systems at exactly the point where simplicity is needed most. Our work considers practical options – grounded in proportionality and procedural coherence – that could allow a small business owner to deal with both personal and corporate debts through a coordinated or consolidated process.
Our research develops the conceptual foundation for such a model and evaluates international approaches. A more detailed technical analysis is contained in our existing and upcoming academic writing; this blog post offers a high‑level overview only and forms part of an ongoing law reform dialogue.
Conclusion
The longstanding separation of personal and corporate insolvency continues to disadvantage small business owners whose financial affairs are routinely intertwined through personal guarantees, security interests, and director tax liabilities. International standards and emerging domestic policy signals support a more integrated approach.
Our research will continue to:
- gather doctrinal and empirical data on how the current intersection operates in practice;
- refine reform options ranging from procedural coordination to consolidation; and
- apply a systems‑based analysis, aligning with the 2023 PJC recommendations.
We share Assistant Minister Dr Andrew Leigh’s view that insolvency systems shape not only outcomes after failure but the conditions for responsible entrepreneurship. A more coherent and proportionate framework has the potential to improve the experiences of small business owners, creditors and households alike. We welcome feedback as we progress this project.
Contact
Michael Murray | Research Affiliate, Ross Parsons Centre for Commercial, Corporate and Taxation Law, University of Sydney Law School, M +61 402 248 353; E michaelhugh.murray@sydney.edu.au
Dr Amanda Bull (She/Her) Lecturer | Faculty of Business and Law | School of Law | Queensland University of Technology amandajayne.bull@qut.edu.au
23 December 2025
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[1] Small to medium enterprises
[2] United Nations Commission on International Trade Law
[3] International Monetary Fund
[4] The Hon Dr Andrew Leigh MP, Assistant Minister for Competition, Charities and Treasury, Assistant Minister for Employment
[5] LM Lo Pucki, Systems Approach to Law, (1997) Cornell Law Review 479 at 521, referring to CE Lindblom, The Science of “Muddling Through, (1959) 19 Pub Admin Rev 79 at 81.
[6] WP/19/27, by Garrido et al.
