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Pre-Insolvency Planning

The window between financial pressure and formal insolvency is where outcomes are actually decided. By the time formal processes begin, most of the meaningful options are already gone — and the ones that remain are constrained by what wasn't done earlier.

Overview

Why the pre-insolvency window matters

Australian law has a clear architecture for what happens when a company is insolvent — voluntary administration, liquidation, deed of company arrangement, Small Business Restructuring. These are formal processes with well-defined steps, well-defined practitioners, and well-defined outcomes. They are not, however, the only options. They are simply the options that remain when nothing else has been done.

The months before formal insolvency — when pressure is real but not yet terminal — are where the actual decisions get made. That window is where:

• Creditors can be approached on commercial terms rather than through statutory processes
• Restructuring can happen without the cost, disruption, and reputational impact of voluntary administration
• Safe harbour protections can be qualified for and documented
• Asset structures can be reviewed and improved before clawback risks attach
• Strategic decisions about which entities, assets, and contracts to preserve can be made deliberately rather than imposed by an insolvency practitioner

The shorter the window when specialist advice is engaged, the narrower these options become.

In Practice

What pre-insolvency planning looks like in practice

Every engagement is different, but the work generally moves through the same logical sequence:

Position diagnosis. A clear-eyed assessment of where the company actually is — solvency position under both balance-sheet and cash-flow tests, creditor landscape (who, how much, what is enforceable, what is not), director duties exposure, personal asset exposure, and corporate structure. The assessment has to be honest. Strategies built on optimistic assumptions fail.

Director duties navigation. Section 588G of the Corporations Act creates personal liability for directors who allow a company to incur debts while insolvent. Section 588GA introduces the safe harbour defence — protection for directors who develop a course of action reasonably likely to lead to a better outcome for the company. Both are technical and both require contemporaneous evidence. Pre-insolvency work either qualifies the director for safe harbour or makes clear, deliberate decisions about creditor engagement during the period.

Option mapping. Every legitimate option is identified and evaluated. Negotiation with the ATO. Refinancing. Capital injection. Sale of non-core assets. Restructure of operations. Small Business Restructuring. Voluntary administration. Members' voluntary winding-up. Each has different implications for the company, the director, the creditors, and the assets — and the right combination is rarely obvious.

Execution. Whichever path is chosen, execution matters as much as choice. We coordinate with accountants, lawyers, and where appropriate, registered liquidators or restructuring practitioners. We document the process so that any subsequent scrutiny — by the ATO, by ASIC, by an insolvency practitioner, by a creditor — finds a record of legitimate, well-considered decisions rather than reactive scrambling.

Questions Directors Ask

Questions directors ask first

What is the difference between pre-insolvency advisory and insolvency practitioners?
Pre-insolvency advisory is the work done before a formal insolvency appointment — identifying options, structuring engagement with creditors, qualifying for safe harbour, considering whether formal processes are necessary at all. Insolvency practitioners (registered liquidators) are appointed to formal processes once they are commenced. The two roles do not overlap. Engaging a pre-insolvency adviser does not commit you to any formal process. It increases the chance you avoid one.
Can pre-insolvency planning include moving assets?
Australian law allows clawback of transactions intended to defeat creditors, including under uncommercial transaction, unreasonable director-related transaction, and creditor-defeating disposition provisions of the Corporations Act. Pre-insolvency planning that involves asset transfers must be done with full awareness of these provisions, properly valued, properly documented, and undertaken at a point where solvency is genuinely arguable. Done correctly, legitimate restructuring is defensible. Done incorrectly, it can create personal and criminal liability that did not previously exist.
What is safe harbour and when does it apply?
Safe harbour, under section 588GA of the Corporations Act, is a defence against insolvent trading liability for directors who, on suspecting the company is or may become insolvent, develop one or more courses of action reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. Qualifying for it requires meeting specified preconditions (including being up-to-date with employee entitlements and tax reporting) and developing a documented, reasonable course of action. The defence is technical but valuable — it preserves directors' ability to attempt a turnaround without exposing themselves personally.
Is everything we discuss confidential?
Yes. Initial consultations and engagement are strictly confidential. Communications with us are not, in themselves, privileged the way communications with a lawyer for legal advice are — but in practice, pre-insolvency advisory work is typically conducted alongside legal advisers where privilege is needed, and the substance of our work is held in commercial confidence regardless. Anything you tell us stays between us, the work product is yours, and there is no obligation to proceed in any particular direction.

Related Services

Adjacent areas of our practice

Most engagements involve more than one of these. The four pillars are designed to work together.

Small Business Restructuring (SBR)

A formal restructure path under Part 5.3B.

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DPN Defence

Where pre-insolvency pressure has produced ATO action.

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Asset Protection

Where structure work needs to happen before pressure arrives.

Read more →

Take Action

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