For Australian businesses navigating the choppy waters of insolvency, the concept of Debtor in Possession (DIP) is gaining fresh relevance in 2025. With new legislative tweaks and an uncertain economic climate, understanding DIP isn’t just for legal eagles or corporate giants—it’s essential knowledge for any director or owner steering a struggling company.
What is Debtor in Possession (DIP)?
Debtor in Possession refers to a situation where a business undergoing insolvency or restructuring remains under the current management’s control, rather than being handed over to an external administrator. While DIP is a familiar term in US Chapter 11 bankruptcies, Australia’s insolvency regime has been gradually introducing similar principles, particularly since the reforms of 2021 and the ongoing fine-tuning into 2025.
Under a DIP arrangement, the company’s directors stay at the helm, guiding operations through a formal restructuring process. This approach aims to preserve value, keep staff employed, and offer creditors a better return compared to liquidation. Recent reforms have continued to expand access to DIP-style arrangements for small and medium enterprises (SMEs), reflecting a global trend toward business rescue over outright closure.
2025 Policy Updates: How DIP is Changing in Australia
Several policy developments are shaping DIP in Australia this year:
- Simplified Restructuring: The Small Business Restructuring (SBR) process, first introduced in 2021, remains central to DIP. In 2025, eligibility thresholds have been adjusted, allowing more businesses with liabilities up to $5 million (up from $1 million in 2024) to enter DIP-style restructuring without handing over control to administrators.
- Creditor Engagement: New rules mandate earlier disclosure and more robust communication with creditors. Businesses must provide a clear restructuring plan and forecasted returns, improving transparency and fostering trust in the DIP process.
- DIP Financing: Australian lenders are increasingly offering specialised DIP finance products. These loans give distressed businesses working capital during restructuring but often come with strict oversight and covenants, reflecting the risk profile and new regulatory scrutiny introduced by ASIC in late 2024.
These updates reflect a policy shift: regulators and lawmakers want to support viable businesses while protecting creditors and the broader economy from the domino effects of mass insolvencies.
How Does DIP Work in Practice?
Consider the case of a Sydney-based retail chain that, after a challenging 2024 holiday season, faces mounting debts and cashflow issues. Instead of appointing a voluntary administrator, the directors engage a restructuring practitioner and opt for a DIP arrangement under the SBR process.
- The company continues trading, with directors remaining in charge.
- A formal restructuring plan is drawn up and presented to creditors, outlining how debts will be repaid over 12–18 months.
- Creditors vote on the plan; if approved by more than 50% by value, it becomes binding on all unsecured creditors.
- The company secures a short-term DIP loan from a non-bank lender to manage urgent supplier payments and maintain stock levels.
Throughout, the business must meet strict reporting requirements and demonstrate ongoing viability. If the restructuring plan fails, creditors can still vote for liquidation, but the DIP framework gives companies a fighting chance to survive and emerge stronger.
Risks, Rewards, and Key Considerations
DIP isn’t a silver bullet. Businesses considering this path must weigh the benefits and challenges:
- Benefits: Maintains business continuity, preserves jobs, and often delivers better outcomes for creditors and owners compared to liquidation.
- Risks: Directors retain significant responsibility and face ongoing scrutiny from creditors, lenders, and regulators. If the plan fails, personal liability may arise, especially if trading while insolvent.
- Costs: Engaging restructuring practitioners, legal counsel, and securing DIP finance can be expensive, though often less so than full administration.
- Market Perception: Successfully navigating DIP can restore stakeholder confidence, but public awareness of the process is still evolving in Australia—some suppliers and customers may remain wary.
Directors should ensure robust cashflow forecasting and be realistic about the business’s prospects before entering DIP. ASIC’s 2025 guidance underscores the need for early action and transparency to maximise the chances of a successful restructure.
The Bottom Line: Is DIP Right for Your Business?
With insolvency law reforms making DIP-style arrangements more accessible and practical for Australian businesses in 2025, this approach is now a mainstream option for directors facing financial distress. It offers a structured path to survival—if managed with care, transparency, and professional support.
