Company can’t pay its debts? Your options explained
If your company cannot pay its debts as they fall due, it may already be insolvent. From that point, every new debt can add to your personal risk as a director. The right response depends on three things: whether the business is still viable, how much it owes, and how hard creditors are pressing. Options range from a payment arrangement or an informal turnaround under safe harbour, to Small Business Restructuring, voluntary administration, or an orderly liquidation. The earlier you act, the more of these remain open.
Step 1: Check for urgent deadlines
Some creditor actions run on fixed clocks. Deal with these first:
- Statutory demand. You have 21 days from service to pay, settle or apply to set it aside. If you do nothing, the company is presumed insolvent and can be wound up.
- Director Penalty Notice. The ATO can make directors personally liable for unpaid PAYG withholding, GST and super. A DPN usually gives 21 days, and what you can do depends on whether the amounts were reported on time.
- Winding-up application. If one has been filed, there is a court hearing date. Get advice immediately.
Step 2: Get a clear picture
- A short cash-flow forecast: what comes in and must go out over the next 13 weeks.
- A list of creditors, showing how much each is owed, how overdue it is, and which are pressing.
- The status of wages, super, BAS and other tax lodgements.
- Any personal guarantees you have signed.
These numbers decide which options are available. Wages, super and tax lodgements in particular decide whether safe harbour or SBR is open to you.
Step 3: Choose the right path
| Your situation | Option to consider | What it involves |
| Short-term cash squeeze, viable business, creditors willing to wait | Payment arrangements | Negotiate time to pay with key creditors, including an ATO payment plan |
| Viable business with a turnaround plan, entitlements and lodgements current | Safe harbour | An informal restructure with an adviser, which protects directors from insolvent trading liability |
| Viable small business, liabilities under $1 million, often with ATO debt | Small Business Restructuring | Directors stay in control while a plan is put to creditors, and creditor action is paused |
| Viable but larger or more complex business, or one that needs urgent protection | Voluntary administration | An administrator takes control, often leading to a deed of company arrangement |
| Business no longer viable | Creditors’ voluntary liquidation | An orderly closure, with assets realised and the business wound up |
For a detailed comparison of the formal options, see voluntary administration, SBR or liquidation.
What not to do
- Keep taking on new debt in the hope things turn around. This is how insolvent trading liability builds up.
- Pay some creditors ahead of others. If the company later goes into liquidation, the liquidator may be able to recover those payments as unfair preferences.
- Move assets out of the company for less than their value. A liquidator can reverse these transfers, and directors can face serious consequences.
- Stop lodging BAS and super reports. Late lodgement can make DPN liability harder to escape and can rule out safe harbour.
- Ignore letters from creditors or the ATO. Deadlines run whether or not the mail is opened.
How Greengate Advisory can help
We start by working out where the company actually stands and which deadlines are running, then explain the realistic options. That includes when not to use a formal process. Our registered liquidators handle safe harbour advice, Small Business Restructuring, voluntary administration and liquidation, so the advice is not tied to a single solution. The first consultation is free and confidential, and we can explain things in English, Mandarin, Cantonese or Korean. Sydney (02) 8318 3699, Brisbane (07) 3868 1888.
Frequently asked questions
What happens if my company can’t pay its debts?
It may be insolvent. Creditors can issue statutory demands and apply to wind the company up, and directors risk personal liability for new debts incurred while it is insolvent. Getting advice early keeps more options open.
Can I restructure my company’s debts without liquidating?
Often, yes. Options include payment arrangements, an informal turnaround under safe harbour, Small Business Restructuring for companies with liabilities under $1 million, and voluntary administration leading to a deed of company arrangement.
Should I pay the ATO or my suppliers first?
Get advice before choosing. Paying some creditors ahead of others can be clawed back in a later liquidation. ATO debts for PAYG withholding, GST and super can also lead to personal liability through a Director Penalty Notice.
Will I lose my house if my company can’t pay its debts?
Not automatically. Company debts belong to the company. Directors become personally exposed through personal guarantees, Director Penalty Notices or insolvent trading claims, which is why acting early matters.
How quickly do I need to act?
Immediately if there is a statutory demand, a Director Penalty Notice or a winding-up application. Otherwise, as soon as you suspect the company cannot pay its debts on time.
Sources: Corporations Act 2001 (Cth) Parts 5.3A, 5.3B and 5.7B; ASIC Regulatory Guide 217; ATO guidance on payment plans and director penalties. This page is general information, not advice about your circumstances. Last reviewed: 1 October 2026.
Written by Patrick Loi, Director and Registered Liquidator. Patrick has more than 20 years’ experience in corporate restructuring and insolvency and founded Greengate Advisory. Meet the team.
