This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
30 June is not just the end of the financial year. For directors of Queensland companies facing cash flow pressure, it is the most important checkpoint of the calendar.
Under Australian corporate law, a director who allows a company to incur debts while insolvent faces personal civil liability. The Corporations Act does not care whether the EOFY was busy, whether you thought things would improve, or whether you relied on your accountant. What matters is whether you knew, or ought to have known, that the company was insolvent at the time it incurred the debt.
Before 30 June 2026, every Queensland company director should be able to answer one question: Is my company solvent?
The Two Legal Tests for Solvency Under the Corporations Act
Section 95A of the Corporations Act 2001 (Cth) provides the definition:
A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
This is the cash flow test. It is the primary test under Australian law.
A company is solvent if it can pay its debts as and when they fall due — not whether its assets exceed its liabilities on paper. A company with substantial real property or equipment may still be insolvent if it cannot pay wages, the next BAS, or a statutory demand within 21 days.
Courts also examine a balance sheet consideration: whether a company’s total liabilities exceed its total assets, particularly when assessing insolvency over a period. But the cash flow test governs for director liability purposes under s 588G.
The critical implication: A balance sheet that looks healthy does not mean your company is solvent for the purposes of the Corporations Act. The question is liquidity, not net worth.
Five Questions Every Director Should Answer Before 30 June
Work through each of the following before the end of the financial year:
1. Can the company pay all current creditors on time?
List every creditor: trade suppliers, the ATO (income tax, GST, BAS), employees (wages and superannuation), lease obligations, and bank facilities. Can each be paid on the contracted date?
If the answer is “not all of them” or “we are negotiating payment arrangements,” the company may be showing the early indicators of insolvency.
2. Is the company current on superannuation?
The ATO’s Director Penalty Notice regime makes superannuation obligations personally significant for directors. Quarter 4 (April to June 2026) SGC is due by 28 July 2026. If super for earlier quarters remains unpaid, a lockdown DPN has likely already been issued or will issue.
Under the lockdown DPN regime, once the ATO serves the notice, a director cannot escape personal liability by paying or placing the company into administration. Personal liability is crystallised at that point.
Payday Super commences 1 July 2026. From that date, superannuation must be paid on each payday rather than quarterly. Directors of companies that are already struggling with quarterly obligations face a significant compliance step-up from 1 July.
3. What is the ATO debt position?
ATO debt is frequently the first formal indicator of financial distress for small to medium enterprises. Unpaid GST, income tax, and PAYG accumulate quickly and attract the General Interest Charge at approximately 11 per cent per annum. Directors should obtain a full ATO debt statement before 30 June.
If there is unresolved ATO debt and the company cannot pay it, take legal advice before 30 June. Directors who act early have significantly more options than those who wait for the first DPN to arrive.
4. Are there any statutory demands or court proceedings outstanding?
A statutory demand served under s 459E of the Corporations Act creates a 21-business-day window to comply or apply to set it aside. Failure to respond creates a statutory presumption of insolvency that a court can rely upon in a winding up application.
A pending statutory demand at EOFY is a red flag requiring immediate legal advice. The 21-day window is strict. Courts rarely grant extensions.
5. Can the company meet all debts falling due in the next 90 days?
Consider: lease payments due in Q1 of the new financial year, loan repayments, ATO obligations (including the new Payday Super), trade creditors, and employee entitlements. Now compare that to available cash, receivables that will actually convert, and accessible credit facilities.
If there is a material gap, the company may be insolvent or approaching insolvency within the meaning of the Corporations Act. A 90-day forward view is the standard courts apply.
What to Do if You Suspect Insolvency
If you have reason to suspect the company may be insolvent, the Corporations Act expects directors to act. Section 588G imposes personal civil liability on directors who allow a company to incur further debts knowing, or in circumstances where a reasonable person would know, that the company cannot pay its debts.
Options available to directors who act before 30 June include:
- Safe harbour (s 588GA): Seek professional advice immediately and begin developing a documented restructuring plan. Safe harbour is not passive. It requires active steps and proper records. The window to engage is before the company incurs further debts, not after a creditor acts.
- Small Business Restructuring (s 453B): For companies with creditors of $1 million or less, a streamlined restructuring process that allows the director to remain in control while a plan is developed with a registered restructuring practitioner.
- Voluntary Administration: Appoint an administrator to assess whether the company can be saved through a Deed of Company Arrangement, or whether liquidation is inevitable. A moratorium on most creditor action applies from the date of appointment.
- Members’ Voluntary Liquidation: If the company is solvent but you wish to wind it down in an orderly way, appoint a liquidator under a solvency declaration. This is not available to insolvent companies.
Taking legal advice before 30 June preserves options. Directors who wait until a winding up application has been filed, or until a liquidator has been appointed, have significantly fewer choices — and often face personal claims.
Related Reading
If you are navigating financial distress or creditor pressure, the following articles may assist:
- Insolvency Lawyers Brisbane — Boss Lawyers
- ATO Director Penalty Notice Crackdown 2026: What Directors Must Do Before 30 June
- 5 Things Directors Must Know About Safe Harbour
Call 1300 267 711 or contact us at bosslawyers.com.au to speak with Mark Harley, Principal Solicitor, directly.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
