Company in Financial Trouble? Lawyers for Directors in Melbourne

When your company can’t keep up with its debts, the worry soon becomes personal. This page explains where a director’s own exposure can come from and which options exist. Advice early usually leaves you with more of them.

Hendersons Legal is a Melbourne law firm established in 2001, and our debt recovery and insolvency lawyers advise company directors in financial difficulty. If you are looking for a director penalty notice lawyer in Melbourne, or you have a statutory demand or a creditor asking about a personal guarantee, this page sets out the main risks and options in plain terms.

It is written for directors of small and medium private companies. If you are the one owed money, start with our debt recovery page. Our principal, David Henderson, has more than 30 years’ experience. We also act for creditors and liquidators, so we check for conflicts before we discuss the details of your matter.

Insolvent trading: what the law asks of directors

A company is insolvent if it can’t pay all its debts as and when they become due and payable (section 95A of the Corporations Act 2001 (Cth)). Under section 588G of the Act, a director must prevent the company from incurring a debt if the company is insolvent at that time, or becomes insolvent by incurring it, and there are reasonable grounds to suspect that. The duty covers anyone who acts as a director, not only those formally appointed.

A breach is mainly a civil matter. A court can order a director to pay compensation, impose a penalty, or disqualify the director from managing companies. If the company is being wound up, section 588M allows the liquidator to recover from a director who has breached section 588G an amount equal to the loss a creditor suffered on the debt because of the company’s insolvency, as a debt due to the company.

The Act gives directors some defences, and the director has to prove them. They include reasonable grounds to expect the company would stay solvent, reasonable reliance on a competent person responsible for solvency information, absence from management for a good reason such as illness, and taking all reasonable steps to prevent the debt. Whether any applies depends on the facts.

Safe harbour: protection with conditions

Safe harbour (section 588GA) can protect a director from insolvent trading liability, but only if its conditions are met. After the director starts to suspect the company may become insolvent, they must start developing a course of action reasonably likely to lead to a better outcome for the company than appointing an administrator or liquidator straight away. The debts then have to be connected to that course of action or incurred in the ordinary course of business. Other points to know:

• It generally does not apply while the company is failing to pay employee entitlements, including super, or to meet its tax reporting obligations. A court can order otherwise.
• A court can look at matters such as whether the director is properly informed about the company’s finances, keeping proper financial records, getting advice from an appropriately qualified entity, and developing or implementing a restructuring plan.
• It can end, for example if the director stops pursuing the course of action, the course stops looking reasonably likely to work, or an administrator or liquidator is appointed.
• The director has to point to evidence that the conditions are met.

Received a director penalty notice? The 21 days matter

The ATO can make a director personally liable for certain unpaid company amounts: PAYG withholding, GST and the super guarantee charge. These are called director penalties. Before the ATO can recover one, it must give the director a director penalty notice (DPN). It can recover the penalty 21 days after it issues the DPN, counted from the day it posts the notice or leaves it at the address registered with ASIC. The clock can start before you read the notice.

Notices where the penalty can still be remitted

If the unpaid PAYG withholding or GST was reported within three months of its due date, or the super guarantee charge was reported by its due date, the penalty can be remitted if one of these happens within the 21 days:

• the company pays the amount outstanding in full
• an administrator is appointed to the company
• a small business restructuring practitioner is appointed to the company
• the company begins to be wound up

Lockdown notices

Where the amounts were reported late, or never reported, the notice is often called a lockdown notice. The ATO says the only way to remit the penalty then is to pay the company’s liability in full. Appointing an administrator or restructuring practitioner, or winding up the company, does not remit it. The ATO treats its own estimates of unpaid amounts as never reported.

Defences and next steps

The law includes some defences, such as illness or another good reason for not taking part in management, or having taken all reasonable steps to have the company pay, go into administration or be wound up. The ATO says relying on other directors or advisers is not a defence.

We can’t say what is right for you without seeing the notice, because it depends on what was reported, when, and what the company can afford. Time is short. Call us the day the notice arrives, or send us the details through our online enquiry form, and tell us the date on the notice.

Restructuring and other formal options

A registered liquidator is involved in each formal option below. Our role is to advise the directors and the company on the legal side. We do not act as the insolvency practitioner.

Small business restructuring

Small business restructuring (Part 5.3B of the Corporations Act) lets an eligible company put a plan to its creditors while the directors stay in control. A restructuring practitioner, who is a registered liquidator, advises the company and helps prepare the plan but does not take over day-to-day management. Creditors vote on the plan. If you want a small business restructuring lawyer in Melbourne to advise on eligibility, the plan and your own exposure, that is work we do.

As at October 2026, ASIC’s guidance sets these main conditions:

• total liabilities of no more than $1 million when the practitioner is appointed
• a director resolution that the company is, or is likely to become, insolvent
• due employee entitlements, including super, paid before the plan goes to creditors
• required tax lodgements up to date
• generally no restructuring or simplified liquidation in the past seven years

While the process runs, unsecured creditors generally can’t enforce their claims without consent or the court’s permission, and creditors can’t enforce directors’ guarantees without the court’s leave. It does not clear everything. Appointing a restructuring practitioner only remits a director penalty if it happens within the 21 days, and only for amounts reported on time. Payments that reduce the company’s debt also reduce the penalty, because the ATO treats the two as parallel liabilities.

Voluntary administration and liquidation

In voluntary administration, the directors can appoint an independent registered liquidator, who takes control and works out whether the company or business can be saved, often through a deed of company arrangement with creditors.

If the company can’t be saved, its members can resolve to wind it up and appoint a liquidator, who collects and sells the assets and pays creditors. Smaller companies with liabilities of up to $1 million may qualify for a simplified liquidation, which the liquidator decides on and creditors holding more than 25% in value can stop. Liquidation deals with the company. It does not resolve a director’s separate personal debts or guarantees.

Personal guarantees

Directors are generally not personally liable for a company’s trading debts just because they are directors. Insolvent trading, director penalties and personal guarantees are the common exceptions. If you signed a guarantee for a bank, landlord or supplier and the company can’t pay, the creditor can look to you personally.

A guarantee claim is a debt recovery matter, and our debt recovery page explains how those claims run. Bankruptcy is the process for individuals, as liquidation is for companies. Our debt collection and insolvency page has more on each.

What to do now

• Get the current financial position from your accountant: what the company owes, to whom, and what falls due soon.
• Keep lodging your BAS and IAS on time, even if you can’t pay. How and when amounts are reported affects your options if a director penalty notice arrives.
• Keep paying wages and super as they fall due. Both matter for safe harbour and for restructuring.
• Don’t pay one creditor ahead of the others without advice. A liquidator can later challenge some payments as unfair preferences.
• Open ATO mail the day it arrives, and check that ASIC has the right registered address for the company.
• Write down what you decide and why. If you rely on safe harbour, you will need evidence.
• Get advice early from your accountant, a registered liquidator and a lawyer. ASIC says acting early gives you more options.

When to call a director penalty notice lawyer in Melbourne

• You have a director penalty notice, and the 21 days are running or may have passed.
• A creditor has served a statutory demand on the company. See setting aside a statutory demand.
• A creditor has started, or threatened, a winding up application.
• A bank or creditor is asking you to pay under a personal guarantee.
• You are weighing safe harbour, restructuring, administration or liquidation and want legal advice alongside your accountant’s and a liquidator’s.
• The directors or shareholders disagree about what to do next. See our pages on shareholder disputes and business and commercial law.

This is general information, not legal advice. Every situation is different, so get in touch about yours.

Send us the details

Use our online enquiry form to describe what is happening and upload any notice, demand or creditor letter. If a deadline is close, call (03) 9629 2211 as well, because an enquiry does not stop time running.

Questions directors ask us

How it works

1. Call (03) 9629 2211 or send us the details through our online enquiry form. Tell us what has happened and send whatever you have, such as the ATO notice, any demand or creditor letter, and any guarantee you signed.
2. We clarify your instructions and take a first look at the documents.
3. We send you a costs agreement and disclosure statement setting out the scope of the work and our fees.
4. Once you accept, we start work and keep you posted.