The Insolvency Culture That Punishes People for Asking Early

There's a pattern in this industry that I've watched for close to four decades and never made peace with.

The business owner who comes forward early, admits the position, and tries to do the right thing by everyone often ends up worse off than the one who says nothing, keeps trading, and lets it collapse on its own. Not always. Often enough that it's a rule, not an exception.

That's not a bad outcome. That's a bad design.

How the system rewards silence

Think about what happens when an owner speaks up early.

They contact the tax office and disclose the real position. They tell their accountant. The debt becomes visible, which means it becomes actionable. A director penalty notice can now be issued against a person the ATO knows is engaged and contactable. The disclosure that was meant to be responsible becomes the thing used to move against them.

Now think about the one who goes quiet. Nothing gets lodged. Nothing gets disclosed. The debt sits in the dark, and while it sits there the owner keeps drawing an income out of a business that shouldn't be trading.

Eventually it collapses. There's less left for creditors and more damage all round. But for a meaningful stretch, silence was the strategy that paid better.

Any system where honesty carries an immediate penalty and avoidance carries a delayed one will produce more avoidance. That's not a moral failing in business owners. It's arithmetic.

Who this actually serves

Ask who benefits and the answer isn't creditors — they'd almost always do better from an early, orderly process than a late collapse.

It isn't the owner, obviously.

It isn't the ATO in any real sense, because a company that's been quietly insolvent for two years pays less than one restructured eighteen months ago.

What it serves is the part of the industry that gets paid at the end. There's a version of insolvency practice — and I want to be careful, because there are excellent practitioners in this country and I work with them — where the fee event is the collapse. If the business survives, there's no appointment. If it fails, there is. That's a structural incentive, and pretending otherwise helps nobody.

I'm not a liquidator or a trustee, and I never have been. I don't take appointments. That's deliberate, and it's the reason I can tell an owner "you don't need any of this yet" without it costing me anything.

The shame does the rest

The design problem gets a hand from something simpler.

We've built a culture where business failure is treated as a moral event. So owners in trouble don't behave like people with a solvable problem. They behave like people with something to hide — from their accountant, their partner, their staff.

Every month of hiding is a month of options quietly closing. Restructuring goes. Small Business Restructuring eligibility goes. A negotiated arrangement goes, because there's nothing left to negotiate with.

By the time shame lets go, the only doors still open are the ones nobody wanted.

What good would look like

I'd start here.

Make early disclosure genuinely safer, so that an owner who comes forward is in a better position than one who doesn't. That means real protection attached to the act of speaking up, not just an assurance of goodwill.

Make the options visible before crisis point. Most directors I meet have never heard of Small Business Restructuring, and the ones who have usually hear about it too late to qualify.

And stop treating a failed business as a failed person. That one isn't legislative. It's cultural, and it's the one that does the most damage.

Until it changes, my job is to be the person you can say it out loud to first. I've been the director of a company that couldn't pay everyone it owed — in 1988, and again more recently. I'm not going to flinch, and I'm not going to lecture you. Early is worth more than everything else combined.

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