Wealth and Asset Protection: Why It Matters Even When Your Business Is Thriving

Many Australian businesses operate stable on the surface with strong revenue, loyal customers and confident forecasts. But in today’s economic climate, stability can be misleading. The rise in insolvency in Australia is a stark reminder that even profitable companies can find themselves vulnerable to financial collapse. If you’re not actively considering asset protection or planning for the unexpected, your business and personal wealth could already be exposed.

Already facing financial distress or worried insolvency may be on the horizon? Read our guide for businesses navigating insolvency and protecting assets under pressure here. For advisors seeking advanced strategies to safeguard client assets amid rising insolvency risks, explore our in-depth guide.

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The Hidden Risk: Why Even Healthy Businesses Are Facing Insolvency

Business insolvency is rising fast. In 2024 alone, company failures surged by over 40%, reaching their highest level in nearly a decade. Personal bankruptcies are also rising, particularly among business owners and directors exposed through personal guarantees.

What’s driving this spike? A combination of ATO enforcement, high interest rates, inflationary pressures, and tighter cash flow. During the pandemic, many struggling businesses were propped up by government relief and leniency from regulators. The ATO and other government bodies took a softer approach to enforcement, allowing businesses to defer obligations and avoid immediate consequences. However, once that support ended, enforcement resumed at full pace and many of those already on the brink were unable to recover. This shift has contributed significantly to the surge in insolvency rates across Australia.

But insolvency doesn’t just strike failing businesses. Even profitable ones can collapse due to mismanaged cash flow, unpaid tax obligations, or a single legal dispute. Others are quietly sliding toward crisis, relying on personal funds, falling behind on super, or delaying BAS lodgments, until the cracks become irreversible.

The danger isn’t always obvious. That’s why proactive planning and early intervention matter more than ever.

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Industries That Were Hit Hardest by Insolvency in Australia

Construction

• Construction leads the pack, making up 27.7% of all insolvencies. Fixed-price contracts, rising material costs, and high interest rates have crushed margins. Even large builders are collapsing, leaving subcontractors and suppliers unpaid.

Hospitality

• The hospitality sector accounts for 15.2% of insolvencies, with a business failure rate nearing 9%. Cafes, restaurants, and hotels face soaring input costs, labour shortages, and shrinking consumer spending. Thin margins make survival tough.

Retail & Services

• Retail, transport, and admin support services also face elevated insolvency risk. Weak demand, rising fuel costs, and loan repayments are straining already thin operating buffers.

No sector is completely safe — but construction and hospitality remain the most exposed.

Why These Sectors Are Vulnerable

Common factors driving insolvency in these industries include:

• High financing costs: Construction and transport businesses, in particular, rely on debt.
• Rising input prices: Food, energy, fuel, and raw materials have surged in cost.
• Labour shortages: Affecting both hospitality and logistics sectors.
• End of COVID supports: Sectors artificially sustained during the pandemic are now confronting deferred debt and full operating conditions.
• ATO enforcement: Many small businesses have accrued tax debt (e.g. GST, PAYG) and are now facing pressure from the ATO.

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Common Myths About Insolvency and Asset Protection (And the Truth Behind Them)

Even though insolvency law in Australia is strict, there’s still a lot of bad advice floating around on forums, in business circles, and even from well-meaning contacts. Here’s what business owners and advisers need to know.

Myth 1: "Just transfer assets to someone else to keep them safe."

Reality: Transferring assets to dodge creditors is illegal.

• These are called creditor-defeating dispositions.
• iquidators can claw back assets moved before insolvency - over $200 million was recovered this way in 2024.
• You could face lawsuits or penalties. Asset protection must be set up early and legally.

Myth 2: "Insolvency means the business is finished."

Reality: Insolvency doesn’t always mean closure.

• There are turnaround options like voluntary administration or restructuring.
• With early advice, businesses can negotiate with creditors and survive.
• Insolvency can be a reset — not the end.

Myth 3: "My Pty Ltd company protects me personally."

Reality: Directors are not automatically protected.

• If you trade while insolvent, you can be personally liable.
• Personal guarantees on leases or loans mean your home and savings may be at risk.
• The ATO can issue Director Penalty Notices for unpaid super, PAYG, or GST.

Myth 4: "I’ll repay family or friends first before filing."

Reality: Preferential payments can be reversed.

• Favouring certain creditors (like repaying a friend) can be challenged by a liquidator.
• Creditors of the same rank must be treated equally under law.
• Instead, seek advice on how to manage payments legally.

Myth 5: "I’ll wait — maybe it will sort itself out."

Reality: Waiting usually makes things worse.

• Delays increase debt, reduce options, and create personal risk.
• Early action allows for more flexible solutions like debt negotiation or safe harbour protection.
• Ignoring the problem is the riskiest move.

Myth 6: "I can DIY insolvency using online advice."

Reality: Every case is different — professional advice is essential.

• Choosing the wrong process (liquidation vs restructuring) can hurt more than help.
• Some online “tips” may involve illegal phoenixing.
• Get help from a qualified insolvency practitioner or lawyer to protect yourself and stay compliant.

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How to Protect Business Assets and Family Wealth

The most effective way to avoid damage is to treat asset protection as a non-negotiable part of your business strategy.

Start by reviewing your business structure. Using a company or discretionary trust can help separate your business activities from your personal wealth. If you are still operating as a sole trader or have signed personal guarantees, you may be putting your assets directly on the firing line.

Superannuation is another powerful tool. It is generally protected in bankruptcy, making it one of the most secure long-term asset protection strategies available to Australian business owners.

Insurance should also be reviewed regularly. Whether it is public liability, business interruption, or key person cover, insurance can be the buffer that prevents a setback from turning into insolvency.

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Best Practices to Avoid Insolvency

Strong financial management is the foundation of any resilient business. Monitor your cash flow frequently. Do not rely solely on profitability. Lodging your tax and super obligations on time is critical. Late lodgment can lead to personal consequences such as director penalty notices.

Avoid being dependent on a single customer, supplier, or product line. If one part fails, the whole business may follow. Diversifying revenue and managing costs strategically is key to staying solvent.

Most importantly, seek professional advice early. Whether from your accountant, lawyer, or an insolvency expert, external input can help identify risks before they escalate.

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Proactive Steps to Help You

No one expects insolvency. But with the rising rate of insolvency in Australia, every business owner and adviser should be thinking about protecting business assets and securing family wealth. If you are not actively implementing asset protection strategies, you may already be one step behind.

Whether your business is growing or just staying afloat, now is the time to strengthen your structures, seek early advice, and take control of your financial future.

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Asset Protection Checklist for Business Owners

Use this quick checklist to assess whether you’re on the right track:

___ My business is structured through a company or trust – not as a sole trader.

___ I understand and regularly review any personal guarantees I’ve signed.

___ My business and personal finances are fully separated.

___ I contribute to superannuation and understand its protection in bankruptcy.

___ I regularly review my insurance cover and know what is included.

___ My tax and super obligations are always lodged and paid on time.

___ I’m not reliant on a single customer, supplier, or income stream.

___ I review my cash flow monthly (or more frequently).

___ I have a basic succession plan or continuity strategy.

___ I consult regularly with a lawyer or accountant for proactive advice.

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If you’ve ticked fewer than 7 of the above, you may have gaps in your asset protection strategy.

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Get Expert Insights at Our Upcoming Seminar

Want to dive deeper into how to safeguard your business? Join us at our upcoming breakfast seminar, where our experienced legal team will unpack real case studies, share practical strategies, and answer your questions live.

This is a chance to hear directly from the lawyers advising clients on these issues every day and walk away with actionable steps you can apply to your business.

Spaces are limited, book your seat here.

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‍This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.

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