The lead-up to Christmas is meant to be the most wonderful time of the year. However, for many Australian directors, it turns out to be the most dangerous.

At Rodgers Reidy we see the same pattern every single year: companies that were “just hanging on” in November are in voluntary administration or liquidation by late January. The trigger is almost always a decision (or non-decision) made in the festive-season optimism between mid-November and Christmas.

Here are the five mistakes we see most often — and the very real personal consequences for directors who make them.

1 – Betting everything on a “Christmas miracle” trading result

Retail, hospitality, wholesale, import — it doesn’t matter the sector.

Directors tell themselves: “If we can just get through Christmas trading, the cash will come in and we’ll be fine in January.”

Reality: if the company is already doubtful about paying debts when they fall due, every new invoice raised or purchase order placed from now until Christmas is potentially insolvent trading.

Directors who continue trading without a credible turnaround plan expose themselves to personal liability under s588G of the Corporations Act for every debt incurred while insolvent. Penalties can run to millions, and the ATO and liquidators are increasingly aggressive in pursuing directors personally.

Safe harbour protection is still available — but only if you start a proper restructure before the Christmas shutdown. Wait until January and you’ve almost certainly missed the boat.

2 – Paying bonuses, staff parties or director drawings “because it’s Christmas”

We saw it last year: a company with $1.2m in unpaid super and GST paid $180k in staff Christmas bonuses and director “accrued remuneration” in mid-December.

Those payments are classic unreasonable director-related transactions (s588FDA) and almost certain to be clawed back by a liquidator. Worse, if the company fails, the directors are now personally out of pocket for money they thought was “theirs”.

If the business is under financial stress, Christmas generosity must come from profitable cash flow — not from creditors’ money.

3 – Making selective payments to “keep suppliers sweet for next year”

Directors often pay critical suppliers or related entities in December while leaving trade creditors, the ATO or employees unpaid.

These are textbook voidable preferences (s588FA). Liquidators recover them routinely, and directors who authorised them can face personal liability if they cannot prove they had reasonable grounds to believe the company was solvent.

A far better strategy is to communicate openly with all creditors and, if necessary, appoint a Safe Harbour advisor or consider appointing a Small Business Restructuring Practitioner or Voluntary Administrator before selective payments are made.

4 – Switching off completely over the Christmas/New Year break

Many directors hand the keys to a junior bookkeeper or no one at all and disappear to Noosa or Bali for three weeks.

Director duties do not take holidays.

If a major customer goes bust, a supplier issues a statutory demand, or the bank pulls the overdraft support while you’re sipping cocktails, ignorance is no defence. Courts have repeatedly held that directors cannot “bury their heads in the sand”.

At minimum, directors must have real-time access to cash flow, aged payables and bank positions over the break, and a clear escalation protocol if pre-set triggers are breached. 

5 – Deciding to “deal with it in the new year”

This is the deadliest mistake of all.

By the time most directors pick up the phone in mid-January, the company has traded insolvently through the entire Christmas period, preferences have been paid, cash reserves are exhausted, debts have likely increased, and creditors are furious.

At that point the only realistic options are usually liquidation or a very aggressive restructuring that leaves directors with personal exposure.

The companies that survive are almost always the ones whose directors sought advice in November or early December — when Safe Harbour, Restructuring (via SBR or VA), informal turnarounds or pre-pack solutions were still viable.

The festive season is the worst possible time to be complacent about financial distress — and the best possible time to fix it while options still exist.

If your business is feeling the pinch — overdue tax, stretched suppliers, maxed facilities, or simply that gut feeling that January is going to hurt — pick up the phone now.

A confidential conversation with an experienced restructuring advisor costs nothing and can save everything.

Rodgers Reidy has offices in Sydney, Melbourne, Brisbane, Perth, Adelaide, Hobart, Darwin and various regional centres.

Call 1800 766 866 or visit www.rodgersreidy.com.au

Wishing you a safe and prosperous festive season — from the team that helps when it isn’t.