How to Talk to Your Accountant About Insolvency
Taking the first step toward turning your business around
Facing financial trouble in your business can be overwhelming, but talking to your accountant about insolvency is one of the smartest moves you can make. Accountants are trusted advisers who can help you assess your financial position, flag any compliance issues, and connect you with restructuring or insolvency professionals—but only if you’re open and honest.
Here’s how to approach that important conversation with clarity and confidence.
What Is Insolvency?
Insolvency occurs when a business can’t pay its debts as and when they fall due. It’s a critical financial and legal issue—and continuing to trade while insolvent can expose directors to personal liability under Section 588G of the Corporations Act 2001 (Cth) [1].
Common warning signs of insolvency:
Unpaid ATO debt or defaulted payment plans
Maxed out overdrafts or constant reliance on short-term funding
Supplier accounts on stop-credit
Unpaid employee superannuation
Frequent borrowing or juggling to pay bills
ASIC notes that directors must act promptly to avoid worsening the company’s financial position if insolvency is suspected. [2]
Why You Should Talk to Your Accountant Early
Accountants can:
Assess solvency using financial reports and cash flow projections
Prepare financial documentation for negotiations with the ATO or lenders
Refer you to a registered insolvency or restructuring practitioner
Help explore Safe Harbour or Small Business Restructuring options
The ATO and ASIC both stress early engagement as key to protecting both the business and the director personally [2][3].
How to Prepare for the Conversation
Before approaching your accountant, gather:
Most recent P&L, balance sheet, and cash flow statement
A list of outstanding debts (ATO, suppliers, loans)
Copies of any DPNs, statutory demands, or legal letters
An outline of monthly expenses and revenue projections
Details of any personal guarantees you’ve signed
This information will help your accountant quickly determine how serious the situation is and what steps to take next.
What to Say: Starting the Conversation
If you're unsure how to start, try one of the following:
“I’m concerned the business might be insolvent. We’re falling behind on payments and struggling with cash flow. Can we go through the financials together and work out my next steps?”
Or:
“I’ve received a Director Penalty Notice and I don’t fully understand the risks. I need your help to get clear on the options before this escalates.”
What Not to Do
Don’t delay—time is critical in insolvency scenarios
Don’t hide financial information or avoid uncomfortable facts
Don’t rely on short-term borrowing or personal funds to ‘plug gaps’
Don’t assume the problem will resolve itself—most don’t
ASIC reports that businesses which seek professional advice early are far more likely to avoid forced liquidation or director liability [2].
What Happens Next?
After your conversation, your accountant may:
Recommend consulting a registered Small Business Restructuring Practitioner
Refer you to an insolvency lawyer or liquidator
Assist in preparing a Safe Harbour plan
Help negotiate with the ATO for payment plans, remission, or DPN relief
Create a turnaround plan if the business is viable but under pressure
Final Thoughts
Having the insolvency conversation isn’t easy—but it’s necessary. Speaking to your accountant openly and early can make all the difference. Whether the solution is restructuring, repayment plans, or formal insolvency, the key is acting before the problem becomes unmanageable.
References
Corporations Act 2001 (Cth) – Section 588G: Duty to prevent insolvent trading
https://www.legislation.gov.au/Details/C2023C00057ASIC – Insolvency: A Guide for Directors
https://asic.gov.au/regulatory-resources/insolvency/ATO – Director Penalty Regime
https://www.ato.gov.au/Business/PAYG-withholding/In-detail/Director-penalty-regime/Treasury – Insolvency Reform for Small Business (2021)
https://treasury.gov.au/consultation/c2020-124503CA ANZ – Guide to Small Business Financial Distress
https://www.charteredaccountantsanz.com/
