New AFSA data reveals the personal cost of business stress

As we move through the early months of the year, I’m seeing a familiar – and increasingly concerning – pattern. The fallout from business distress, often long after a business has gone into corporate insolvency, is now catching up with business owners personally.

Recent data from the Australian Financial Security Authority (AFSA) reinforces what we’re seeing on the ground. In December 2025, business-related personal insolvencies increased 38 per cent year on year, with 344 people who entered personal insolvency also involved in a business, up from 249 in the same month a year earlier.

While December can be a pressure point, the 2025 result wasn’t isolated. Business-related personal insolvencies have increased in each December over the past four years, rising from 163 cases in 2022 to 344 in 2025. Over that period, the share of all personal insolvencies involving someone connected to a business has grown from around 27 per cent to more than 32 per cent.

What this tells me is that personal insolvency is increasingly occurring later in the business distress cycle. This isn’t about sudden failure. More often, it’s the personal impact of prolonged pressure. For many business owners, years of managing cash-flow stress, rising costs and mounting obligations eventually lead to personal insolvency as historic liabilities, including tax debts, materialise.

It’s common for personal insolvencies to follow business insolvencies around 12 to 18 months or so later, as personal exposure emerges after business distress has already taken hold. The current data suggests we are now seeing that lag play out.

In one recent bankruptcy matter I handled, a sole trader in the residential construction sector gradually took on larger contracts without changing the structure of the business – i.e., incorporating. As multiple pressures converged, the business owner was unable to pay trade suppliers, and over the following 6-12 months that stress flowed through to personal insolvencies. In this case, trade accounts and personal guarantees left not only the business, but also the owner’s home, at risk.

We’re also seeing a shift in outcomes. Bankruptcies now account for more than 60 per cent of all personal insolvencies, up significantly over the past four years. By contrast, growth in debt agreements has been more moderate, and Personal Insolvency Agreements remain low.

Those entering personal insolvency continue to come from a wide range of industries, including construction, retail trade, transport, postal and warehousing, health care and social assistance, and other services. Total personal insolvencies have also trended higher across most states over successive December periods, pointing to broad-based pressure rather than isolated pockets of stress.

At the same time, total personal insolvencies have trended higher across most states over successive December periods, reinforcing that the pressure is broad-based rather than isolated. New South Wales and Victoria have recorded steady volume growth since 2022, Queensland has seen one of the strongest increases over the period, Western Australia has experienced sharp growth from a lower base, and December totals in South Australia and Tasmania now sit well above 2022 levels.

This brings us to February. With the late February BAS deadline approaching, the first major compliance test of the year for businesses – particularly SMEs – is now in focus. When combined with unpaid superannuation obligations from January, ongoing ATO enforcement activity and a higher interest rate environment, long-standing issues that may have been managed or deferred can quickly become unavoidable.

As both a Registered Liquidator and Bankruptcy Trustee, I see firsthand how business distress and personal exposure often intersect. Once personal exposure intensifies, options narrow quickly – often faster than people expect. If you are feeling pressure on either side of the equation, now is the time to seek advice. Speaking with me or one of my colleagues can materially change the outcome.

Emma Mos
Partner
Registered Liquidator & Bankruptcy Trustee