After the Record: What 14,000 Business Failures Tell Us About 2026

FY2024-25 is on track to set a record for corporate insolvencies in Australia. Current projections suggest more than 14,000 companies will have entered external administration by June 30 — exceeding the 11,000+ failures of FY2023-24, which itself was the highest since 2012-13.

The question for business owners isn’t whether these numbers are concerning. It’s what they reveal about who fails — and who doesn’t.

The 2026 forecast: cautious improvement

After two years of escalating insolvencies, forecasters expect 2026 to bring modest relief. Atradius anticipates a 5% decline in global insolvencies, with the Asia-Pacific region — including Australia — expected to lead the improvement.

Several factors support this outlook. Interest rates have eased from their 2024 peak, with the cash rate now at 3.60% after three cuts in 2025. Consumer spending is recovering. GDP growth is projected to reach 2.0-2.3% through 2026. And the worst of the pandemic-era distortions — deferred tax debts, artificially extended survival — have now largely washed through the system.

But improvement at the aggregate level doesn’t mean safety at the individual level. Even a 5% decline from current rates would still leave insolvencies well above historical norms.

What the failures reveal

The RBA’s April 2025 Financial Stability Review provides the clearest analysis of who’s failing and why.

More than three-quarters of recent insolvencies have been small businesses with fewer than 20 employees. Construction and hospitality continue to dominate — reflecting fixed-price contracts meeting rising input costs in construction, and thin margins meeting discretionary spending pullbacks in hospitality.

But the most telling finding relates to timing. The age distribution of firms entering insolvency has shifted, with more older businesses failing in 2023-24 than usual. These aren’t startups that never found product-market fit. They’re established businesses that operated for years before conditions exposed underlying weaknesses.

The RBA’s analysis is direct: pandemic support measures helped businesses accumulate cash buffers, but those with underlying issues — poor management, weak financial controls — simply failed later rather than sooner.

The ATO factor

One force that isn’t easing: tax enforcement. The ATO is pursuing over $35 billion in unpaid small business tax debt — roughly two-thirds of the total debt book. In FY2024-25, the ATO issued 84,529 director penalty notices covering $5.5 billion in liabilities.

The share of insolvent firms entering administration with tax liabilities exceeding $250,000 has risen by more than 10 percentage points compared to pre-pandemic levels. This reflects both the accumulation of deferred obligations during COVID and the ATO’s return to active enforcement.

From July 2025, a further change takes effect: interest on tax debts (general interest charge) will no longer be tax-deductible. For businesses carrying ATO debt, the effective cost of that debt just increased — another reason to get ahead of the liability rather than manage it reactively.

What distinguishes survivors

The businesses that avoid insolvency through challenging conditions share common characteristics — and they’re not what most people expect.

It’s not about industry. Construction and hospitality have high failure rates, but plenty of businesses in those sectors are thriving. It’s not about size. Small businesses fail at higher rates, but small businesses with strong financial controls outperform large businesses without them.

What distinguishes survivors is visibility: the ability to see problems early enough to act. They know their cash position in real time. They understand which customers and services generate margin and which don’t. They can model scenarios — what happens if revenue drops 20%, if a major client leaves, if rates rise 50 basis points.

The insolvency data tells us that most failing businesses don’t collapse suddenly. They deteriorate gradually, with warning signs that go unnoticed or unaddressed because the owner couldn’t see them clearly enough.

The opportunity heading into 2026 isn’t to predict which businesses will fail. It’s to build the infrastructure that ensures you can see problems before they become crises.

Sources

ASIC Insolvency Statistics 2024-25; RBA Financial Stability Review April 2025; Atradius Global Insolvency Forecast 2026; ATO Annual Report 2024-25; Accountants Daily June 2025; illion Commercial Risk Barometer Q4 2024.