When a business starts running out of cash, most directors assume the biggest risks sit with the company. The reality is very different. Once a business approaches insolvency, the risks begin shifting from commercial to personal, and they do so faster than most directors expect.
Many of the directors we work with tell us the same thing. They knew things were getting tight, but they didn’t realise how exposed they were personally until it was almost too late. Understanding these risks early gives you the power to make safer decisions and protect your future.
In this blog, we break the risks into three clear categories that every director should understand.
1. Claims from Insolvency Practitioners
Once a liquidator or administrator is appointed, their job is not to protect the director. Their duty is to creditors. They are required by law to investigate the company’s affairs, review the conduct of directors and pursue recoveries where appropriate.
Under the Corporations Act 2001, practitioners have broad powers to make claims against directors and others, including:
- Insolvent (wrongful or fraudulent) trading
- Directors loan
- preference payments
- Misfeasance
- Transactions under value
- Transactions defrauding creditors
In some cases, they may also make claims against related parties.
These processes aren’t personal. They are legal obligations. But they can be stressful, expensive and damaging if you enter the process unprepared.
2. Claims from Creditors
While the insolvency action stops most creditors from being able to continue chasing their debts, there are some instances where they can chase the director personally:
Personal guarantees
Leases, finance agreements and some trade accounts often have a personal guarantee hidden in the fine print. Once the company can’t pay, the creditors may be able to chase the guarantors under these clauses.
ATO Director Penalty Notices
A Director Penalty Notice (DPN) is a formal notice issued by the Australian Taxation Office (ATO) to company directors, holding them personally liable for unpaid company debts related to Pay-As-You-Go (PAYG) withholding, Superannuation Guarantee Charge (SGC), and GST (if applicable). More information on DPNs >
Secured lender action
Some creditors may hold PPSR or mortgages over personal property, such as vehicles or your home. Banks and finance companies may enforce security after appointment of an insolvency event.
3. Other Consequences
Insolvency doesn’t just affect the business. It can also create personal consequences for the director, both immediately and in the months that follow. Some of the key areas to be aware of include:
Personal Insolvency Flow-On Effects
A company insolvency can trigger personal insolvency issues, especially where guarantees, tax debts or claims from a liquidator fall back onto the director.
Impact on Licences
In some industries, an insolvency event can affect your ability to hold certain professional or trade licences, depending on local regulations.
Exposure of Personal Assets
Without the right planning, the business failure can place personal assets at risk. Understanding this early is critical to protecting your position.
Contract Termination or Restrictions
Some commercial contracts, franchise agreements or supply arrangements contain insolvency-trigger clauses that impact the director personally. These can terminate immediately or impose new restrictions.
Taking the time to assess these risks properly can make a significant difference to your financial future.
The Bottom Line
These risks don’t appear all at once. They build quietly, often while the director is distracted trying to keep the business afloat. What directors need is clarity about the path ahead and support from someone who is solely focused on their personal position.
This is where a Director’s Advocate becomes critical.
An insolvency practitioner works for the company and its creditors. A Director’s Advocate works for you. Our job is to help you understand the risks, prepare properly and navigate the process safely so you avoid unnecessary personal loss.
If cash flow is tight, if creditors are applying pressure or if you’re starting to worry about personal exposure, now is the time to get clarity. Early advice makes the difference between a controlled outcome and losing control of the process entirely.
Think an SBR could be right for you?
Book a Strategy Call with us
Book a free strategy call with us today and take the first step toward getting back in control. We’ll help you understand your position, weigh your options, and build a clear path forward — without judgement, pressure, or jargon.
