Key Takeaways
- The Productivity Commission’s inquiry into reducing barriers to business dynamism is examining Australia’s insolvency framework — including voluntary administration, liquidation and the Small Business Restructuring (SBR) process.
- An interim report is due November 2026; final recommendations will follow public hearings.
- Three reform themes are on the table: faster exits for non-viable businesses, better returns for creditors, and reducing director stigma to encourage earlier intervention.
- Queensland insolvency appointments are up 44% year-on-year to April 2026, making the state one of the highest-risk jurisdictions for business failure.
- The 1-Year Bankruptcy Bill is a related parallel reform — reducing discharge from 3 years to 1 year — which will directly affect creditor recovery windows.
Australia’s insolvency laws are about to face their most significant scrutiny in a decade. The Productivity Commission (PC) — the Australian Government’s independent economic advisory body — has launched a full public inquiry into reducing barriers to business dynamism, with insolvency framework design at its core. An interim report is expected in November 2026.
For Queensland directors, business owners, and creditors, this inquiry matters. It signals that the federal government is examining whether the current insolvency architecture — voluntary administration, liquidation, Small Business Restructuring, personal bankruptcy — is fit for purpose in a post-pandemic, high-interest-rate environment where insolvency appointments have surged 44% year-on-year.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
What Is the Productivity Commission Inquiry?
The Productivity Commission is Australia’s peak economic advisory body. On 3 July 2026, the Australian Institute of Company Directors (AICD) made a submission to the PC’s call for views. The inquiry’s terms of reference explicitly include examining:
- Regulatory and administrative burdens on business entry, exit, and restructuring
- Access to capital for distressed businesses
- The design and operation of insolvency frameworks — whether they encourage timely intervention or create perverse incentives
The PC’s interim report will be released in November 2026, with public hearings to follow and a final report expected in 2027. This is a live reform process — not a speculative one.
Why Australia’s Insolvency Framework Is Under Scrutiny
Australia’s insolvency framework was substantially reformed in 2020-21 with the introduction of two new processes:
- Small Business Restructuring (SBR) under Part 5.3B of the Corporations Act 2001 (Cth) — for companies with less than $1 million in liabilities
- Simplified Liquidation — a streamlined winding-up process for eligible small companies
Despite these reforms, ASIC data from its Report 836 (published 7 July 2026) shows that only 20% of voluntary administrations result in a Deed of Company Arrangement (DOCA). The majority still end in liquidation. For many businesses, the insolvency framework continues to function more as a final exit mechanism than a genuine restructuring tool.
The PC inquiry is asking: why is this, and what needs to change?
Three Key Reform Themes
1. Faster Exits and Reduced Costs
Australia’s insolvency processes are expensive. Even a simple creditors’ voluntary liquidation can cost tens of thousands of dollars in practitioner fees, leaving creditors with minimal distributions. The PC is examining whether simplified exit pathways — including low-cost dissolution for companies with no assets — should be expanded.
For Queensland creditors, faster exits matter: the longer an insolvency drags on, the more of the estate is consumed by practitioner fees and the less there is to distribute.
2. Better Creditor Returns
A recurring theme in the submissions received is that the current system prioritises process over outcomes. Creditor returns in Australian liquidations are notoriously low — often cents in the dollar for unsecured creditors. The PC is examining whether earlier intervention mechanisms (particularly the SBR process) are being underutilised.
Key data point: ASIC’s report found that DOCA creditor returns varied significantly by industry and company size, with construction and hospitality showing the worst outcomes. Queensland’s construction sector — already reeling from the collapses of PBS Building, Open Projects Group, and Form Structures — is particularly exposed.
3. Reducing Director Stigma and Encouraging Early Advice
One of the most commercially significant proposals being examined is the reduction in director stigma around insolvency. Under the current framework, directors who appoint an administrator or liquidator face:
- Potential ASIC investigation and s206F disqualification proceedings
- Public examination by liquidators under s596A/s596B
- Unfair preference clawback proceedings against creditors they paid before the appointment
- Insolvent trading liability under s588G if they traded while insolvent
This creates a well-documented delay problem: directors wait too long before seeking advice, because appointment itself triggers a cascade of legal consequences. The safe harbour provisions (s588GA, introduced in 2017) were intended to address this — but uptake has been limited due to complexity and cost.
The PC inquiry is examining whether the safe harbour should be expanded, simplified, or replaced with a broader “recognition of restructuring intent” standard.
The 1-Year Bankruptcy Bill: A Parallel Reform
Running alongside the PC inquiry is the proposed Bankruptcy Amendment (Debt Repayment) Bill, which would reduce the default bankruptcy discharge period from three years to one year. This Bill has been tabled in the Commonwealth Parliament and is progressing toward a third reading.
For creditors, the implications are significant: a one-year discharge window means a dramatically shorter period to track and realise bankrupt debtors’ after-acquired property and income contributions. Under the current three-year framework, trustees in bankruptcy (and creditors pressing them) have more time to pursue income contribution orders under s139T of the Bankruptcy Act 1966 (Cth).
The reform is designed to reduce the “stigma” of personal insolvency and encourage distressed individuals to seek relief earlier — but it comes at a cost to creditor recovery.
What This Means for Queensland Directors and Businesses Now
Reform is coming, but it is not here yet. Until the PC’s final recommendations are legislated, the current framework applies in full. For Queensland directors and business owners, the practical steps remain unchanged:
If Your Company Is in Financial Difficulty
- Seek advice early. The safe harbour (s588GA) is only available if you seek advice from a qualified adviser and develop a restructuring plan. Waiting until cash runs out destroys safe harbour eligibility.
- Consider Small Business Restructuring if eligible. If your company has less than $1M in liabilities, SBR may allow you to propose a repayment plan to creditors while remaining in control of the business.
- Understand the director liability landscape. ATO Director Penalty Notices (DPNs) for unpaid PAYG, superannuation, and GST; ASIC’s 84,000 DPNs issued in FY2024-25; and Payday Super commencing 1 July 2026 all create compounding personal liability for directors who delay.
If You Are a Creditor
- Enforce early. If a debtor company is showing signs of distress, statutory demands and court proceedings should be commenced before an insolvency appointment is made — not after.
- Understand the preference clawback risk. Any payment received from a company in the six months before liquidation may be clawed back as an unfair preference under s588FA. If you received a large payment from a distressed company, seek advice immediately.
- Monitor the 1-Year Bankruptcy Bill. If the Bill passes, your window to pursue bankrupt personal guarantors will be significantly compressed. Update your debt recovery strategy now.
The Queensland Context: A State at the Epicentre
ASIC data from April 2026 confirms that insolvency appointments nationally are up 44% year-on-year. Queensland is one of the most affected states, driven by:
- Construction sector failures (PBS Building, Open Projects Group, Form Structures, Black Hops Brewing)
- Cost-of-living pressure on small businesses in hospitality and retail
- ATO enforcement escalation — 21 Departure Prohibition Orders issued since 1 July 2025, already exceeding all of FY2024-25
- Payday Super creating new weekly superannuation cash flow requirements from 1 July 2026
For Queensland businesses, the insolvency framework is not an abstract policy question. It is the operating environment.
When to Get Legal Advice
If your company is facing:
- A statutory demand from a creditor or the ATO
- Director Penalty Notices
- Creditor pressure that cannot be managed through ordinary trading
- A situation where you cannot pay debts as and when they fall due
… you need legal advice from an experienced insolvency lawyer now, not after the appointment. The options available to you narrow significantly once a liquidator or administrator is appointed.
Boss Lawyers acts for directors, creditors, and business owners across Queensland. If you need an experienced insolvency lawyer in Brisbane, or are facing a director dispute or commercial litigation matter, contact us on 1300 267 711 or through our contact page.
Frequently Asked Questions
What is the Productivity Commission inquiry into business dynamism?
It is a public inquiry by Australia’s independent economic advisory body examining regulatory barriers to business entry, exit and restructuring, including the design of Australia’s insolvency framework. An interim report is due in November 2026.
What insolvency reforms are being proposed?
Key proposals include: faster exits for non-viable businesses; better creditor returns through earlier intervention; expanded or simplified safe harbour protections for directors; and possible changes to the Small Business Restructuring process.
What is the 1-Year Bankruptcy Bill?
It is a proposed amendment to the Bankruptcy Act 1966 (Cth) that would reduce the default bankruptcy discharge period from three years to one year. It has been tabled in Commonwealth Parliament and is progressing toward passage.
How does the Productivity Commission inquiry affect Queensland businesses now?
It does not change the current law. The existing framework — voluntary administration, liquidation, Small Business Restructuring, safe harbour — applies in full. However, the inquiry signals likely reform in 2027, and Queensland businesses in financial difficulty should act under the current rules now.
What should a Queensland director do if their company is in financial difficulty?
Seek legal advice immediately. The safe harbour (s588GA Corporations Act) protects directors who obtain qualified advice and develop a restructuring plan. Waiting until insolvency is inevitable destroys safe harbour eligibility and exposes directors to insolvent trading liability.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
