Essentially, the main purpose of taking more than 10 units in year 12 is for the additional units to act as backup units in the event of unexpected unfavourable performance in a particular subject, allowing a student to negate the effect that unfavourable performance would have on their ATAR by having the low-performing subject not count towards their ATAR. Of course, the student would aim to perform at the highest possible standard in all of their subjects to avoid that possibility altogether, especially since taking more than 10 units would be inefficient if the student knows/discovers that their performance in a particular subject will be/is unfavourable.
In terms of your question, the rational course of action would be to disregard the low-performing subject (and drop it where possible) and allocate more time towards your preparations for your other better-performing subjects. Of course, an exception would be if a student is taking and not performing well in 2 units of English (i.e. English Standard or English Advanced), in which case they must address their areas of improvement because this is the only subject that will always count towards their ATAR.
Another factor is the possibility of making a comeback in a particular subject. You mentioned unfavourable internal performance and that the student is yet to sit their HSC exam for that subject. Depending on their exact performance level, they may be able to make a comeback by thoroughly preparing and ultimately performing well in their HSC exam because it contributes the remaining 50% of their overall HSC mark in the subject. It is not unusual for HSC exams to be treated as an opportunity to make a comeback.
Additionally, the reason for which a student is taking a particular subject should be considered. Some subjects may be treated as assumed knowledge or prerequisites for the university degree(s) that a student is interested in studying. In such a case, the student may perhaps wish to still do their best to prepare for the HSC exam of that subject, even if they are certain that the subject will not count towards their ATAR (especially in the case of prerequisites).
However, if there is no reasonable justification for studying for studying for the HSC exam of a particular subject, the subject should be disregarded or dropped altogether, and the other subjects should be prioritised.
Regarding standard ATAR-based entry, universities only consider the student's ATAR in deciding whether to make them an offer to study a particular degree(s). They are not interested in the student's performance in individual subjects, except in the case of prerequisites. They do however consider individual subject performance where relevant. In addition to prerequisites, this applies to early entry schemes where the criteria includes favourable subject performance.
I hope this helps!
