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Rebecca Archer
We’re back for Season 7 of Beyond the Numbers with Grant Thornton. This season we’ll continue to unpack marketplaces, the business landscape and the latest in all things tax, advisory and consulting.
I’m Rebecca Archer, and welcome back to the new season. Today I’m joined by restructuring experts John McInerney and Wesley Eccles. They are here today to explain the existing business landscape in Australia and share their predictions and outlook for 2026.
Overall, Australia’s outlook remains moderately positive, though some businesses are still showing signs of distress. For those feeling uncertain about the next steps, it’s reassuring to know there are different avenues to keep operations running and emerge stronger on the other side.
Welcome John and Wes!
John McInerney
Thanks, Rebecca. Good to be here.
Wesley Eccles
Thanks, Rebecca. Likewise.
Rebecca Archer
So, first off, can you talk to us a little bit about the current business landscape in Australia?
John McInerney
From what I've observed over the December/January period, there's been a lot of good business activity and particularly good for retailers, people in hospitality and in tourism. However, I think business conditions that existed in 2025 – which were tough – will likely continue into 2026, and some of the things – the persistent pressures that I see – are cost of labour, rents being high, energy costs being high, and what that is doing is whilst trade has been good over that summer break, those increased costs are still impacting profitability.
There's ongoing uncertainty around interest rates and I read this morning that some economists are predicting a potential rate rise when the RBA meets again in February. So that's, you know, a concerning landscape. There's obviously uncertainty on the geopolitical stage and as it relates to trade and SMEs still account for a very significant portion of outstanding ATO debt.
So, whilst conditions have been good, I think that, you know, SMEs really need to think long and hard about the year ahead and if they have stockpiled some cash, you know, what do they do with that? Traditionally, as we move into February, the December quarter, BAS is due and that's due on the 28th of February.
So, it's a real crunch time and that can be a real pivotal point. Some businesses don't make it past that date because there's just an extra tax burden that they can't meet.
Rebecca Archer
Anything from you, Wes, in terms of what you're hearing from clients or sort of trends that you're seeing around?
Wesley Eccles
Yeah, look, I definitely agree with John. There are really some opportunities out there, but there still are a lot of businesses that are struggling. The ASIC statistics say that in 2020, when COVID started, insolvencies dropped straight off, but then from 2021 to 2026, there was a gradual increase in insolvencies.
So, insolvencies range from liquidations to voluntary administrations to small business restructures. So, there was about 6,000 insolvencies in 21 and that's up to about 15,000 in 2025 – last year. Included in that, there has really been an uptake in small business restructures, which spiked in 2024, about two and a half thousand appointments, and that's remained pretty constant, and it's a good method for businesses to deal with unmanageable debt – mainly in that small and medium sized category.
We'll talk a little bit more about the ATO activity shortly, but the ATO is one of the primary drivers for insolvency in Australia. So, the ATO took a bit of a view of not enforcing a lot of unpaid liabilities in the two years preceding COVID, but they've really changed their attitude and they're, and they're ramping up enforcement and that's driving up insolvencies.
Rebecca Archer
Are you hearing anything specific from your clients that you could share and, you know, perhaps even some success stories that you've noticed?
John McInerney
I'm dealing with a range of clients across a fairly broad spectrum insofar as, you know, the amount of pressure that they've got against them and their businesses. So, the proactive clients speaking to us earlier and they're getting advice on the range of available options and, you know, if that's done early enough, that means that the range of options are broader, and some of these clients I've been speaking with haven't yet appointed a restructuring practitioner. They're still going through the motions of working out what is best for them and their company. So that's, you know, really pleasing to see some of that activity.
I have been speaking to people about small business restructures. I've been speaking to people who have approached me to enquire about a small business restructure, and after I've looked at the affairs of their company and the way that the company's conducted itself, I've sort of said to them, look, I don't think a small business restructure is going to work, and in those instances, I've recommended an alternate pathway, one of which is a pre-pack liquidation.
What I've observed then is those particular directors getting advice elsewhere and going through an SBR process and having that SBR process fail and when it's come back to me – and they have come back to me – and said look, what can we do? We liked option B. Now when I looked at who the restructuring practitioner was, I noticed that it wasn't a registered liquidator who provided that advice and led the directors into the path of restructuring.
Now there's a limited license available to some people to only deliver restructuring services. So, I'm seeing some of those come back and we're helping them out now with a pre-pack liquidation and there have been clients who've just left it far too late, ignored the DPN and really, you know, they're having to sort of exit their business and shut down.
Wesley Eccles
I think that's a good segue to talk about. At least one of our success stories here at Grant Thornton. John and I have worked on dozens of small business restructures, so it is hard to pick one, but one that comes to mind was a local plumbing contractor in Queensland.
He came to us – he previously had some health issues. He was the primary worker in the company – so the one that generated the most revenue – and he had some illness issues, which during that course of illness, his tax debts and other creditors grew to about $300,000.
He was in a position that his reporting for his construction license was coming up in two months’ time and if he had have reported he wouldn't have met that minimum financial reporting requirement because his business was effectively insolvent.
We recommended a small business restructure process, which he undertook and was ultimately successful. The positive outcomes of that process were number one, the unsecured debt was cleared and the company walked out the other side with a clear balance sheet. So that cleared about $250,000 worth of debt, and secondly it didn't impact his QBCC Queensland construction licence. That is a Queensland case. It is different in each state as to how each licence is affected, but generally a small business restructure has a lighter impact on licensing.
Rebecca Archer
Wes, you made reference to some ASIC data there, and according to the Review of Small Business Restructuring Process: 2022-24 Report by ASIC, uptake has increased and 87 per cent of plans pass the success stage. What are your expectations around that kind of figure? Do you think it's going to be the same in 2026?
Wesley Eccles
Look, that's a good question. Yes. First of all, I do believe there will still be strong interest in the small business restructure process. It is a good way for small businesses and some medium sized businesses to deal with unmanageable debt, particularly where that business intends to continue operating in the future. It's not a terminal appointment like a liquidation.
Going back to the stats in that ASIC report that was issued last year, for that three-year period, 87 per cent of all SBRs were successful, and one of the key indicators were following the successful SBR, over 90 per cent of those companies were still registered when it was reviewed. So that means that the SBRs, the companies that are being restructured, are continuing in the future.
Now, look, it's important to say that in the most recent quarter, that success rate has dropped from 87 per cent down to about 70 per cent, and what we're seeing is the ATO is really tightening their screws a little bit as to how they assess small business restructures. That definitely shouldn't be at a traction from going through the SBR process, but it really just highlights the importance of obtaining specialist advice. You need to make sure that we're identifying any issues so that we can mitigate them to give the restructure the best chance of success.
John McInerney
Yeah, I agree. Look, all of those points that Wes has raised just highlight why it's so important to get advice from a qualified professional, and really, that should be a registered liquidator if you're talking about a company with cash flow difficulties.
Rebecca Archer
So, what can you share regarding the specifics of the ATO's focus criteria? Can you break that down, unpack it a little bit for us, perhaps?
Wesley Eccles
No problem. It's probably important to start with one of the key criteria for the SBR being successful is that more than 50 per cent of the creditors need to vote in favour for the SBR to be successful. In 95 per cent of all SBRs, the ATO is the largest creditor. So effectively, whatever the ATO’s vote is, that will determine whether or not the SBR will be successful.
What we're seeing is that the ATO's assessment or criteria for assessing SBRs has been evolving over the last five years. That assessment criteria is definitely a little bit harsher now than it was 12 to 18 months ago, and that just highlights that importance of getting that advice.
Look, the ATO has publicly said recently that they're expecting a 25 per cent in the dollar return. So, a 25 per cent return on the unsecured debts, and really, in my opinion, the ATO is using small business restructures in an attempt to collect the $36b of small business collectible taxation debts.
I summarise the ATO's key assessment criteria for SBRS as company viability, the company's compliance and whether or not it's a good corporate citizen. So just unpacking those a little bit further is the viability component. So, creditors, including the ATO, are not going to support a small business restructure where that company is not viable. If it's not viable, it will probably run into difficulties in the near future, and that goes back to the importance of the business having a robust forecasting and cash flow forecasting in place. The second one, the ATO really looks closely at taxation compliance. So that's lodgement compliance and payment compliance. If either of those two points are quite low and poor, then that will impact the ATO's assessment of a small business restructure and it will likely result in in that business having to offer a higher rate of return in the SBR, and the third one is being basically a good corporate citizen. That's the company and the directors themselves. So just making sure that the directors aren't breaching any of their duties pursued of the Corporations Act, and secondly, what's the company done with its money while its debt has been accrued?
One of the things that creditors in the ATO will look at and look unfavourably on is if creditor debt, including the ATO debt has gone up and at the same time the company's been loaning money to related parties and or directors, creditors will have the view simply is that if those monies were instead applied to the creditor debt, then they wouldn't be in this position to start with.
Rebecca Archer
Would you say that there are any particular industry or state specific dynamics that make restructurings more or less common? From your expertise and what you're seeing on a day to day basis?
John McInerney
Look, I suppose thinking back at the ASIC statistics, on a state basis, traditionally we have seen that the number of restructurings/insolvency are higher across the Eastern Seaboard. When I think back to industry again – now a little bit off topic – but what we are seeing is that construction seems to have normalised in terms of the number of insolvencies. It still takes up a large proportion of insolvencies given the number of construction entities that are registered.
Hospitality is still volatile. I think it's done well over Christmas, but they do suffer now, the return to work and you know, people sort of perhaps have spent a little bit more than they would have liked over Christmas, which is generally what happens, and I think that people have been locked up for so long and cautious for so long and worried about what's happening for so long that this year they've gone, we just want to enjoy ourselves. This is getting too much.
So, I think there's been a lot of spending, but I think that's going to be reeled back pretty quickly, and I think over the next couple of months it's going to be perhaps challenging and I say perhaps because it's just so uncertain, but I do feel strongly that spending will be tightened as we move into the colder months. I think hospitality is still likely to suffer some pain as we move forward.
We have seen an increase in retail insolvencies and that's been an interesting one for me because I've observed a lot of spending and at the same time I've seen an increase in retail insolvencies, but it hasn't been your large retailers that have been going broke, it's actually been your smaller retailers – those without a multi-channel presence.
So really retailers in strip shopping centres or supermarkets that are suffering because people are looking at their products and thinking if I can get that online, right? And that might be wellness products or other types of products, clothing products, like if it's specialty retail and they don't have an online presence, that's where the pain seems to be occurring. Transport has certainly spiked in terms of number of insolvencies, and also it's struggling because post COVID they acquired trucks at inflated prices that they're finding challenging to resell because the resale values dropped and they've got thin margins; it's a real pressure point for operators in that industry and it's just, it's been open to competition for such a long time. It probably needs a bit of a shake up.
Rebecca Archer
Thank you, John. And so, Wes, you've got some quite specific to Queensland examples or experience talk about, I understand, on this particular issue.
Wesley Eccles
Yeah, correct. Thanks, Rebecca.
So, what we're seeing in Queensland is the industries that are the most affected by insolvencies are construction and retail trade and sort of flow on effect, including hospitality.
For the construction sector, it's challenging. There's been year on year price increases to construction costs going up between 4 and 6 per cent each year. You know, ongoing and continued supply chain issues and labour shortages and that's coupled with extensive project delays with the construction industry there's also a flow on effect. So, if a head contractor goes insolvent, then those financial issues flow down to those entities and subcontractors down below. A prime example is recently a construction subcontractor came to us which we did a restructure. They were impacted by all those issues, but primarily it was extensive project delays and also the insolvency of people above them. So that caused them financial difficulties, and we successfully restructured that entity.
Moving onto retail…there's definitely reduced consumer confidence and that's resulting in customers shopping online. Particularly here in Cairns, where I'm based, there's really adverse weather and natural disasters. So, Cairns has a normal low period for your retail and your hospitality. That's from November to March. That's generally the wet season and look, that's extended if there's cyclones or, or further wet seasons.
Rebecca Archer
I wanted to ask about post plan. So how can a business remain disciplined after the small business restructuring process?
Wesley Eccles
Yeah, look, a good way to set the scene here is that more than half of the clients that come in to see us with a level of financial distress, their records are never up to date. We ask for a current balance sheet, and a current profit and loss statement, and in some cases that it takes that client a number of weeks to get back to us with that information.
Now, to an accountant, that screams that that company and that director doesn't actually know what's happening financially with their business. Maybe they're just monitoring the cash at bank. In my opinion, that's a good way to lead to financial issues.
So, where that starts is really that company and director need to be receiving good advice. That professional will identify any reporting shortcomings and encourage implementation of new habits and systems. As part of what I like to call the ‘Grant Thornton experience’, when we meet with clients – particularly when we're discussing options available for a restructure or maybe a voluntary administration – we'll have a look at the figures, we'll talk with the client, talk about their processes, and, and we will provide any recommendations that we can to try and improve that business.
Look, sometimes it's a case of when we're looking at the figures that the company doesn't make sense. What I mean by that is that the financial performance might not be there. It might not be up to the expectations that the director believes and that company is not profitable.
So, in that case, we might challenge that director. You know, why are they considering a turnaround strategy? And even if that turnaround is successful and that company is likely to fail in the future, either they might need to tweak some of their operational activities, or they might need to consider other alternatives for dealing with that debt.
Finally, we find that particularly if they do a small business restructure, their debt burden is lifted. What that means, in my opinion, is that the director, instead of focusing day to day on trying to save their business, they can focus on being profitable and growing their business. Coupled with they won't have creditors contacting them to make payment where historically they wouldn't have been able to make those payments. So, it's really just a heightened level of optimism moving forward.
Do you have anything to add John?
John McInerney
A fundamental part of the restructure process is that a company has a robust cash flow forecast as part of its plan, when that plan is issued to creditors, that's important so that creditors such as the tax office, can see that the company is going to be viable moving forward to pay ongoing obligations as well as paying the debt compromise amount.
No longer are we seeing upfront payments of the plan amount under the SBR. I mean, they were very common a couple of years ago. Now we're seeing those plan payments being made over 6, 12 to 24 months. It can extend out to three years. We never recommend that because it's just far too long a timeline and there's too much risk and uncertainty. So, that cash flow forecast is essential as part of that process.
What we're also seeing now is that creditors are asking us to continue to monitor the company's performance against cash flow on regular intervals, and that's particularly relevant where the plan amount is to be paid over, say, 12, 18, 24 months, which I really like because it means it's holding directors accountable. It's actually teaching them good financial management and being responsible taxpayers, and ultimately the economy generally will benefit from that.
Rebecca Archer
I wanted to ask about the Director Penalty Notices now. Is the increase in those penalty notices accelerating small business restructures? Are you finding that?
Wesley Eccles
Categorically, yes. Directors are facing increased scrutiny as the ATO has ramped up their collection activities. The recent statistics that we've seen is that there's been more Director Penalty Notices issued last year compared to the prior six years combined, and what that means is that the ATO is ramping up their collection activities. You know, during COVID and post COVID, there was a little bit of a period where the ATO was taking a very relaxed attitude to collecting business debts. What that means is that some businesses might have become complacent and let that tax office debt grow, and now there's been a switch in the ATO's activities; they're caught off guard and they're being issued with Director Penalty Notices.
But look, the tax office has other tools in their toolkit to collect debts. They could issue a garnishee to that company's bank account whereby they can just gain access directly to funds, or they can report that company to the credit reporting agencies. And that makes it more difficult to obtain finance. Now, this heightened ATO activity makes it more important when dealing with the ATO, and what we always recommend is the ATO loves being communicated with. So just always engage with the ATO. If they call, answer their calls.
Secondly, always keep on top of superannuation. That's a key focus area for the tax office is unpaid superannuation, and secondly, if you're considering a small business restructure process, the company has to be up to date with its employee entitlements, including superannuation. A couple of other recommendations is even if the company can't pay its BAS or taxation liabilities, we recommend that the company at least lodge those bases and returns on time. That will potentially avoid some, you know, nasty lockdown Director Penalty Notice exposure traveling to the directors personally.
John McInerney
Yeah. I'm also seeing that Offices of State Revenue are becoming more active, and what I've seen in New South Wales is payroll tax audits. Now, it's common practice for accountants to advise directors to structure their business affairs by having more than one company. So, having asset holding entities and having operating entities and then having a group company structure and trying to you spread your payroll costs and your risk out across various entities.
The Office of State Revenues in New South Wales has looked at that and grouped those entities and says, has said due to common ownership interest, it's actually one employer, so you're actually now liable. We've reviewed the structure. The group's actually liable for payroll tax and that can be a fairly hefty sum, particularly, you know, when they make that assessment and it goes back over a number of years. So, I've seen a few people come to me with those issues.
I've also observed officers of state revenue in other jurisdictions, so in WA and in Victoria, write to me as a voluntary administrator of an entity to say, we noticed in the paper that you sold the business of this company to someone else, was their stamp duty paid on that sale contract?
And so that's an obligation that the purchaser is liable for, but they're certainly just being more active in terms of collecting money for their particular state. So that's something that's sort of coming out of left field, you know, and as Wes said, keeping on top of superannuation is critical, particularly if a company wants to go through a small business restructure, because all employee entitlements must be paid in full as and when due and payable as an eligibility criteria, and I'm seeing that people aren't able to meet that component of the test for a small business restructure.
Rebecca Archer
What triggers drive the decision between voluntary administration and small business restructuring?
John McInerney
There's a couple of major components. One is that to be eligible for a small business restructure, a company must be up to date with its employee entitlements – things such as wages and superannuation, generally.
The company must have less than a million dollars in total liabilities, and the third is really the complexity of the business structure. So, a small business restructure is a really good tool for a small business, but if they don't qualify because of unpaid superannuation, then they need to think what other alternatives are there if they cannot pay that debt to be able to be eligible. Often a voluntary administration is too expensive for a small business. So, the only real option would be a liquidation, and I'm seeing more pre-pack liquidations, and a pre-pack liquidation is where a new company is set up and the assets of the old company are valued and then a contract of sale is entered between the new company and the old company and valuable consideration has been paid for those assets by company B such that company A has cash at bank and is liquidated and company B has the business operations and continues in existence.
Wesley Eccles
The only things that I'd add onto that category is obviously for the small business restructure, unsecured debts need to be less than $1m. So that excludes your secured creditors and any accrued employee entitlements. Notwithstanding that if unsecured debts are more than $1m, there might be a way to bring that down under that $1m, but if those debts exceed that $1m and if there's no way to reduce that debt, then that company really needs to consider either a voluntary administration or a liquidation if there's no other avenues to get out of there.
Also, a small business restructure is more when some slight operational improvements are required and to deal with the debt. Whereas a voluntary administration is needed where there's more structural change needed to the organisation; it might need a change of strategy and direction. You know, cutting out pieces of the business and new directions.
The final piece is licensing. So, liquidations and voluntary administrations generally once the appointment happens, that cancels any license. So that's construction, real estate, labour hire. But what we're seeing because the licensing is state-based legislation, each state has its own rules, and it changes for each license. I mentioned before in Queensland, for the three licensing I've tested, which is construction, real estate and labour hire, small business restructures don't impact those licenses. Now that does change from state to state, and it does have mixed results. So that might be another point where a company may consider a structure because it has a lighter impact on licensing.
Rebecca Archer
Well, before we wrap up, for businesses who might be listening, directors of those businesses that perhaps are having some concerns may be in distress. What's the one key action that they should take away from this chat?
Wesley Eccles
Well, I've got a couple. It's act early and have those difficult conversations early. The earlier those conversations are held, the more options that that company and the director has to deal with those issues. The longer they leave it – and if they get a Director Penalty Notice – or even if that penalty notice expires, their options are limited.
Secondly, a Small Business Restructure remains a great option, particularly when where there's a viable business and it's suitable to do a restructure. That is, we've identified and mitigated any potential issues that might cause concerns for an SBR because the SBR effectively clears the balance sheet and provides a clean slate for the company moving forward.
And thirdly, the ATO just loves being spoken to. So even if you are having difficulties paying your debt, keep your lodgements up to date and keep communicating with the tax office. That will hopefully encourage them to work with you and deal with you to help you deal with that situation, and at the same time you can have those conversations with a professional as to what your options are.
John McInerney
Yeah, and look by extension to Wes's comment around acting early. Really, you know, acting when there's cash at bank and sufficient cash at bank to pay for some advisor fees and to support a debt compromise process – be that informal or formal. So, acting early with cash at bank means that those restructuring there are a broader range of restructuring options.
Rebecca Archer
Well, John and Wes, thank you so much for being part of today's program. For those people who are listening who would like to connect with you and perhaps delve deeper into your work, maybe explore potential ways that you can even help them, what's the best way for them to get in touch?
John McInerney
Check out the Grant Thornton website and Wes and my details are on the website or similarly you can find us on LinkedIn.
Wesley Eccles
People listening can also subscribe to Grant Thornton's Affinity network. That's a national network of primary accountants and lawyers whereby it's a community of professionals seeking advice to help each other where possible.
Rebecca Archer
If you enjoyed this episode, make sure to follow Grant Thornton Australia on Apple Podcasts or Spotify so you never miss new insights.
Do you have a burning question or a challenge keeping you up at night? Drop us an email. We’d love to hear from you. Our experts are here to break down the business, tax, advisory and consulting landscape, so you can focus on building your business. Thanks for listening.
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