The second domino falls: after corporate collapses, personal insolvencies take off

Personal insolvencies are climbing sharply across Australia, with new data from the Australian Financial Security Authority (AFSA) revealing a significant increase in March 2025.

AFSA’s provisional monthly statistics show 1,122 Australians entered personal insolvency in March – a jump of over 21 per cent from the 908 recorded in February. The March figures include 673 bankruptcies, 435 debt agreements, and 12 personal insolvency agreements.

This rise marks what some are calling the “second domino” – the inevitable fallout from the wave of business failures. Historically, personal insolvencies lag corporate insolvencies by 12 to 18 months, and the sharp increase suggests that delayed financial pressure is now reaching individuals.

“The trend reflects a growing financial toll, particularly on small business owners and company directors who are now feeling the personal consequences of earlier corporate collapses,” says Emma Mos, Jirsch Sutherland Partner. “The AFSA data reinforces what many insolvency practitioners have long expected – that the surge in business collapses, combined with enormous cost-of-living pressures, is now flowing through to individuals.

“Business owners have done everything they can to stay afloat, often using personal funds or taking out unsecured loans. But with interest rates and cost pressures remaining high, we’re seeing the personal consequences come through in greater numbers.”

According to AFSA, 350 of the personal insolvency cases in March were business-related, involving sole traders, company directors or people in partnerships. Business-related insolvencies also made up 46.8 per cent of all bankruptcies and 58.3 per cent of all personal insolvency agreements. The individuals entering personal insolvency as a result of business activity came from a range of industries, with the most affected being:

• Construction: 141 cases (up 29.4 per cent from February)
• Health care and social assistance: 128 cases (a 28 per cent increase)
• Retail trade: 100 cases (up almost 30 per cent)
• Transport, postal and warehousing: 96 cases (up 9.1 per cent)

“These sectors are already vulnerable to economic shocks,” Mos says. “When financial pressure mounts – whether through unpaid invoices, rising operating costs, tax debt, or shrinking margins – the individuals behind the businesses are often left carrying the burden.”

DPNs: the blind spot jeopardising directors

One growing driver of personal insolvency, Mos notes, is the continuing surge in Director Penalty Notices (DPNs) being issued by the ATO. These notices make company directors personally liable for unpaid company tax debts, including PAYG withholding, GST and superannuation.

“More and more directors are receiving DPNs, and many are shocked to learn the liability doesn’t stay with the company – it becomes theirs,” Mos explains. “They don’t realise that they can’t just walk away from a failed business, and the tax debts can lead to personal insolvency.

“There’s still a worrying lack of awareness. We often see directors with expired DPNs, unaware their personal liability is now locked in. Some think a payment plan will fix it, others don’t even realise they’ve been issued a DPN because their address details are outdated. It’s a real concern, especially as the ATO continues to further ramp up enforcement.”

There was also a clear state-by-state pattern, with NSW recording the most personal insolvencies (344), followed by Queensland (284), Victoria (239) and Western Australia (89). This geographic spread highlights the widespread nature of the trend, with eastern states – where many small businesses are concentrated – bearing the brunt of the rise.

“As local and global economic pressures persist, we anticipate personal insolvencies will continue trending upward throughout 2025, particularly as more directors and business owners grapple with mounting debts and compliance obligations. The lag between business failure and personal insolvency is real, and we’re now seeing it play out. However, insolvency isn’t the end – it can be a reset. The sooner someone seeks help, the more options they may have to recover and rebuild,” adds Mos.