Author
Gavin KingDirector, ASIC Registered Liquidator & AFSA Registered Bankruptcy Trustee
(02) 9220 7125
The June 2026 quarterly release from the Australian Financial Security Authority (AFSA) shows personal insolvencies climbing to their highest quarter since the COVID moratoria began in 2020. But the headline number tells only part of the story.
What I'm seeing as a Bankruptcy Trustee is not primarily a consumer debt problem. It's a corporate insolvency wave that's landing on directors' personal balance sheets through Director Penalty Notices and personal guarantees. The AFSA data captures the personal outcome, but the real cause is happening one step upstream, on the corporate side.
This article walks through what the FY2025/26 data actually shows, what's really driving it, and what advisors and business owners should be watching for.
What the Jun 2026 personal insolvency data actually shows
The June 2026 quarter recorded 3,596 new personal insolvencies. That is the highest quarterly total since March 2020, when the pandemic response began flattening the numbers. Over the twelve months to June 2026, 13,465 Australians entered personal insolvency, up 45 per cent from the post-COVID trough of 9,247 in the year to December 2022.
The trajectory is also accelerating rather than flattening. Year-on-year growth across the last three June quarters ran at 8.9 per cent, then 7.9 per cent, and now 13.1 per cent for FY2025/26.
It is important context that current levels still sit well below pre-COVID norms. Between 2007 and 2019, quarterly personal insolvencies consistently ran between 5,000 and 10,000. What we are seeing is not a crisis peak. It is a recovery from an artificial low, and it has clear room to run.
Victoria is the epicentre of the personal insolvency surge
The national numbers hide how uneven this is by state. Victoria's total personal insolvencies are up 60.3 per cent since Jun-23, well ahead of the 32.9 per cent national figure and roughly double the next-highest states, Western Australia (+32.6 per cent) and Queensland (+33.1 per cent).
The business-related numbers make the Victorian picture sharper still. Business-related personal insolvencies in Victoria are up 94.2 per cent since Jun-23, the single largest state-level increase in the dataset. New South Wales, the next-largest state economy, is up 68.3 per cent over the same period, and Queensland is up 31.9 per cent.
That combination, a state running well ahead of the national trend on both the total and the business-related measure, is consistent with Victoria carrying the heaviest post-COVID small business distress of any state. Advisors and business owners in Victoria should read the national DPN and personal guarantee trends in this article as understating their own local exposure, not overstating it.
The three mechanisms turning company failures into personal insolvencies
Director Penalty Notices from the ATO
The single most dramatic shift in the recent data is not in the AFSA release at all. It is in ATO enforcement.
The ATO issued more than 84,000 Director Penalty Notices in FY2024/25, up from 26,702 in FY2023/24. That is a 136 per cent year-on-year increase. Total ATO collectable debt reached $54.2 billion by June 2025.
A Director Penalty Notice makes a director personally liable for unpaid PAYG withholding, GST, and superannuation. When a company can't pay, the ATO can now step around the corporate veil in twenty one days and pursue the director directly. That personal liability is what converts a corporate tax problem into a personal insolvency.
Personal guarantees called by secured lenders
Most SME lending is structured through the company but secured by a personal guarantee from the director. That guarantee sits quietly in the background while the business is trading. It becomes very loud when the business fails.
When the corporate borrower defaults, the bank calls the guarantee. If the director can't pay the demand, the bank petitions to bankrupt them. This is the mechanism driving the surge in creditor initiated bankruptcies, which are up 137 per cent since June 2023.
Business-related personal insolvencies now sit structurally higher
The share of personal insolvencies flagged with recent business or company involvement has climbed from 27.0 per cent in Jun-23 to 30.4 per cent in Jun-26. It has now sat at or above 29 per cent for six consecutive quarters.
That is a clear structural break from the 23 to 27 per cent range that held through 2020 to 2022. In absolute terms, business related personal insolvencies have grown 49 per cent in three years, well ahead of the total. This is the strongest single signal that SME distress, not consumer distress alone, is the primary engine.
Why sequestration orders look modest but tell the biggest story
Sequestration orders are creditor-initiated bankruptcies. They are the sharpest indicator of enforcement pressure in the AFSA data, and they are up 137 per cent since June 2023.
But absolute sequestration order numbers still sit well below pre-COVID levels, and there's a structural reason for that gap.
Before March 2020, the minimum debt required to petition a debtor into bankruptcy was $5,000. During the COVID emergency response, it was temporarily raised to $20,000. From 1 January 2021 it was made permanent at $10,000. That is double the pre-COVID bar.
Every corporate or personal debt between $5,000 and $10,000 that would once have triggered a creditor's petition now can't. The 137 per cent growth in sequestration orders since Jun-23 substantially understates the true rebound in creditor enforcement, because a large slice of potential petitions is now filtered out at the threshold.
There is a proposal to raise the permanent threshold further, from $10,000 to $20,000. If that reform is enacted, the sequestration order line will be structurally capped even as underlying stress continues to rise. Advisors should factor that into any read of the numbers going forward.
Why bank credit data won't confirm what's happening on the ground
APRA's quarterly ADI statistics show non-performing loans falling from 1.08 per cent (Mar-25) to 0.99 per cent (Mar-26). Past due loans have also fallen. On the surface, the banking system looks healthy.
Two things are hiding the pressure.
- Rising house prices are letting stressed borrowers exit at breakeven. APRA has explicitly noted that the charge for bad and doubtful debts fell year on year because appreciating property was allowing distressed loans to be repaid through sale or refinance, rather than becoming defaults.
- By the time a client reaches my desk they have usually already sold or refinanced the family home. The property has already done its work. What remains is unsecured debt, ATO liabilities, and personal guarantees. None of that shows up in APRA's mortgage NPL figures.
The bank data is not wrong. It is simply looking at the wrong debt.
What advisors and business owners should be watching
For accountants and advisors
If a client has unpaid PAYG, GST or super building up on their books, treat that as an urgent flag. The ATO has moved to active enforcement and DPNs are landing in far greater volume than at any point in the last decade.
The current $10,000 sequestration threshold means creditor pressure is materially harder to ignore than it was pre-COVID. If your client has personal guarantees to a bank or major supplier, and the underlying company is under pressure, the personal exposure needs to be quantified now, not after enforcement begins.
Small Business Restructure (SBR) remains the most effective tool for company side intervention before a corporate problem becomes a personal one. Our guide to Small Business Restructure covers eligibility and process. The earlier we can look at options, the more options exist.
For business owners
The pattern I keep seeing is business owners pouring cash injections into failing businesses without changing what actually generates revenue. Refinancing the house to fund another six months of operations is not a strategy. It is a delay.
If your business is not producing the cash to service its own debt, adding more debt to the pile without an operational plan to lift revenue only extends the runway to a bigger fall. Restructure options exist that can work with your current position, but they narrow sharply once the ATO issues enforcement or a guarantee is called.
Get corporate side advice at the first sign of tax debt accumulating, not when the enforcement notice arrives.
The road ahead and how Mackay Goodwin can help
The June quarter is usually followed by a bigger September quarter. Over the past three years, the Jun to Sep step has produced the largest quarter-on-quarter jump every time, averaging around 12 per cent. Applied to the Jun-26 base, that would put Sep-26 somewhere between 3,950 and 4,150, the first quarter above 4,000 since 2010.
Layered on top of the RBA hiking the cash rate back to 4.35 per cent through early 2026, and the ATO's continued enforcement posture, the underlying trend has clearly stepped up rather than plateaued. FY2026/27 looks likely to run materially hotter than the year we've just seen.
At Mackay Goodwin we work across both the corporate and personal side of insolvency, which matters in a cycle like this one where the two are increasingly linked. If you are advising a client with mounting company debt, or you are a business owner facing tax pressure or the risk of a personal guarantee being called, please get in touch before enforcement begins. Our team can talk through Small Business Restructure, voluntary administration, personal insolvency options, and how to protect what matters.
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