The Reserve Bank of Australia’s October 2026 Financial Stability Review provides an assessment of the current resilience of the financial system and potential risks to financial stability.
Unsurprisingly, the insolvency of businesses does not much rate even if the individual cases may cause angst. But there is more to the figures than appears.
The Review reports that:
- A total of 14,153 companies entered external administration during the 2025-2026 financial year, down 4% from the 14,722 companies recorded in 2024–25;
- these come from 3,747,130 registered companies – that is, 3.7 million +;
- The ratio of 0.38% in 2025-2026 is down from 0.41% in 2024-25 and well down on the 0.56% in 2011-12.
- The most common industries for appointments were construction (24.5%) and accommodation and food services (14.7%), both with low levels for entry hence high levels of exits.
- Most are at the SME end pf the market – around 75% had less than 20 full-time employees, and around 70% had no debt owing to secured creditors.
The Bank does note that the recent insolvency administration of “one large builder and developer” will result in a temporary spike in the September quarter 2026 insolvency figures, reflecting the large number of subsidiaries involved. However that insolvency appears to have involved firm-specific factors relating to excessive risk-taking over recent years.
Personal insolvency
The numbers of personal insolvencies in 2025-2026 (13,465) are higher than those in 2024-25 (12,257) but they still remain low, compared with the 32,000 of 10 years ago.
As to “business bankruptcies”, over 45% of bankruptcies in the April-June 2026 quarter had some connection with a business, whether conducted as a sole trader or partnership, or through a company. https://murrayslegal.com.au/blog/2026/08/30/bankruptcy-numbers-bankruptcy-reform/
These could arise from a Part 5.3B small business restructuring where a creditor wants to still pursue a personal guarantee.
Numbers may increase
But the Reserve Bank notes that since insolvency represents the final stage of severe financial stress for firms, the current insolvency rate does not yet capture the full effect of weaker economic conditions.
The real figures
These are the formal figures available but they probably don’t represent the true, higher, picture.
Why bother?
This is because there are many corporate businesses that don’t bother with insolvency, unless they have to; nor do their creditors, who may think it not worthwhile to spend the money, time and risk.
The decision to enter or force a debtor into insolvency is in private hands, either the debtor company or its creditors. There is no roving liquidator.
In those cases, the directors may simply let the company be deregistered by default, under s 601AB of the Corporations Act. Figures extracted some years ago found that five times as many companies were deregistered by default under s 601AB as went through a formal external administration process. See Helen Anderson – “Insolvency – It’s all About the Money” [2018] UMelbLRS 6.
That outcome was exacerbated by a government decision going back to the removal of the official liquidator role under the Insolvency Law Reform Act 2016. An Official Liquidator had an obligation to administer assetless estates; that role tried to make up for the lack of an Official Receiver in corporate insolvency in Australia which, like the Official Trustee in Bankruptcy, would have attended to assetless liquidations.
In the Explanatory Memorandum to the ILRB 2015, at [9.137], it was explained that following the removal of the official liquidator role, and the obligation to administer assetless estates, creditors would need to make provision for the liquidator’s remuneration.
“This may mean a reduction in the number of assetless companies liquidated as corporate insolvency practitioners would not be expected to commence such administrations without some form of guarantee or where they do not believe they are likely to be remunerated”.
The concern expressed though has been that many of these companies that disappear by default might be the result of phoenix activity but they are unexamined or investigated by anyone. The use of the deregistration process for phoenix activity is said to go back to at least 1995.
The 2023 PJC Report recommended [10] that ASIC
“collect and analyse data from an appropriately sized sample of voluntary and compulsory deregistrations, to provide greater visibility of the solvency status of deregistered companies”.
The government’s response of 6 August 2026 was simply that it notes the PJC recommendation and it encourages ABRS, ASIC and ATO to collaborate to undertake an analysis using information available to each agency.
[And no doubt these three will have regard to the findings of the $400,000+ federal government research project that alerted us to these concerns].
That is, the 14,153 insolvencies announced may represent only a proportion of companies actually insolvent even if not formally declared so.
Insolvent trading businesses
The next group is the large number of businesses with taxes due but unable to be paid, unless on a credit card; or other debt unable to be paid such that these businesses are trading while insolvent.
Again, there is no roving liquidator with a divining rod to detect insolvent trading.
It is odd that it is only when a company is wound up that any investigation takes place, after it is too late, and the long period of debt default becomes apparent.
In fact, there is virtually no regulation of the vast bulk of small proprietary companies operating in the marketplace.
Perspective
Note however that businesses are exiting the market all the time, and not for reasons of insolvency. The Productivity Commission’s 2015 inquiry into Business Set-up, Transfer and Closure found that “nearly 95 per cent of business exits each year are for reasons other than a financial failure event.”
It pointed out that the establishment, transfer and closure of businesses
“are natural features of a dynamic and productive market economy [that] can have significant positive impacts,” because “business entry and exit plays a crucial role in lifting the average productivity of an industry” as “productivity improvements arise following the exit of less efficient businesses and the entry of more efficient businesses.”
This was linked to Schumpeter, describing the process as one that “enables the process of ‘creative destruction’, or, “business dynamism”.
Business failure is commonly portrayed as a social and economic harm — the loss of jobs, the losses of creditors, etc. The reality is that businesses that are not competitive should exit the market and insolvency law provides a process, for those that choose it.
The Reserve Bank assures us of the resilience of our financial system and insolvency’s place within it. If there is a problem with the insolvency regime itself, the Productivity Commission might identify it more clearly from an economics efficiency perspective and come up with a solution.
