The State of the Australian Insolvency Industry: Lessons from 2025 and the Road to 2026

Australia’s insolvency and restructuring market closed 2025 in a state of transition rather than outright surge, with activity shaped less by any single sectoral collapse and more by refinancing risk, creditor selectivity, and increasingly complex stakeholder dynamics.

As we step into 2026, we asked a few firms to reflect on the past year and weigh in on what’s next. They described a market where distress is broad but uneven, formal appointments coexist with negotiated outcomes, and regulatory friction is beginning to intrude on time-critical restructurings.

Market volume and mix: fewer default pathways

“There is distress across the market, but it is not presenting uniformly,” said Blake Shaw, partner at Ironbridge Legal. “Outcomes are diverging much earlier depending on how a business engages with its creditors and advisers.”

At Ironbridge, approximately 20% of insolvency-related work in 2025 involved pre-appointment advisory, including safe harbour advice and contingency planning, with the remainder spread across formal appointments and disputes.

“There was a shift towards liquidations with less focus on voluntary administrations,” Shaw said. “We also saw increased work in the private credit space, acting for both lenders and their appointed receivers.”

He said voluntary administration is no longer being used as routinely as a stabilisation mechanism. “Appointments are often occurring later in the distress cycle, once optionality has already narrowed,” Shaw said.

At the larger end of the market, Clifford Chance reported no significant change in the relative use of voluntary administrations and receiverships where formal processes were required. However, as outlined in greater detail below, partner Nikki Smythe said the more important shift was away from formal appointments altogether.

Counsel James Hewer added that Australia continues to underutilise creditors’ schemes of arrangement compared with other common law jurisdictions. “They remain relatively uncommon here, particularly where speed and execution certainty are critical,” he said.

Sectoral distress: visibility lags reality

Construction, retail, and hospitality remain under pressure, but Ironbridge and Clifford Chance both also pointed to less visible pockets of distress emerging during the year.

“One sector that has emerged more prominently than expected is professional services and advisory businesses,” Shaw said. “Many expanded rapidly during the low-interest, high-demand period and took on fixed overheads on the assumption of sustained deal flow.”

“When that deal flow slowed and clients became more cost-conscious, margins compressed very quickly,” he said. “Unlike construction or hospitality, the distress here is often less visible until cashflow pressure becomes acute, and by then options are limited.”

Ironbridge has also seen increasing stress in parts of the logistics and transport sector, driven by rising costs, tighter margins, and the unwinding of pandemic-era demand assumptions.

Clifford Chance described the market as situational rather than sector-driven, but highlighted healthcare as a growing area of concern. “We have seen increased levels of distress around healthcare, particularly aged care,” Smythe said, pointing to cost pressures, funding constraints, and regulatory complexity.

Hewer said early signs of distress are also emerging in renewable energy assets. “We are seeing activity around solar and wind farms affected by grid bottlenecks and negative pricing,” he said, noting an uptick in strategic reviews and distressed sale campaigns before any formal insolvency filings.

Creditor dynamics: credibility and speed matter more

Ironbridge observed a clear shift toward earlier and more decisive enforcement, particularly by secured creditors.

“There is less tolerance for prolonged soft defaults,” Shaw said. “Consensual workouts are still occurring, but they are increasingly front-loaded. If lenders do not see a credible turnaround plan, reliable information, and stakeholder alignment early, patience dissipates quickly.”

Clifford Chance reported a different dynamic on larger, sponsor-backed matters. “We are seeing a greater willingness, particularly from large and sophisticated private capital players, to find solutions that do not require formal appointments. Secured creditors have been prepared to take longer-term views, provide continued support, and negotiate consensual outcomes” Smythe said. “Where appointments do occur, they are often limited to holding companies in order to maintain value in operating businesses.”

She attributed that approach to the rise of private credit, surplus liquidity, and a perception that formal insolvency can be value-destructive. “There is a strong preference to preserve going-concern value where possible,” she said.

Hewer said that where enforcement is used, it is increasingly precise. “Formal enforcement is often deployed in limited, targeted ways to obtain control while maintaining value in the underlying business,” he said.

On public creditor activity, Ironbridge reported increased assertiveness from the Australian Taxation Office. “Statutory demands and winding-up applications are again a common trigger point,” Shaw said, particularly where engagement is poor or legacy tax debt continues to accrue.

Tools, disputes, and regulatory friction

Voluntary administrations and deeds of company arrangement remain the most commonly used restructuring tools, particularly for loan-to-own strategies and distressed M&A. However, these tools have been subject to rising execution risk.

“We are seeing more insolvency-related disputes running in parallel with restructurings,” Shaw said. “Challenges around security validity, PPSA priorities, related-party transactions, and director duties are increasingly shaping outcomes.”

Clifford Chance pointed to growing interloper risk in voluntary administrations and schemes, including recent court decisions delaying or blocking transactions under section 444GA.

“These developments have made execution risk much more front of mind for bidders,” Smythe said, particularly where transactions rely on tight funding timelines and operational continuity.

Regulatory timing risk is also emerging as a key issue for 2026. KPMG partner Gayle Dickerson warned that the new mandatory merger control regime is misaligned with distressed transaction timelines.

“The voluntary administration process is a 25 business-day process, while even a no-issues ACCC notification can take a minimum of eight weeks,” Dickerson said. “That mismatch creates significant cost, funding, and personal liability risk for practitioners.”

Hewer added that delays in distressed sales can quickly erode value. “Where approval timelines stretch, the counterfactual is often liquidation, which is rarely a positive outcome for competition,” he said.

Outlook: refinancing capacity as the decisive factor

Looking ahead, it appears that refinancing capacity, rather than interest rates alone, will be the dominant driver of insolvency outcomes in 2026.

“The single most influential factor will be refinancing capacity,” Shaw said. “As large volumes of SME and mid-market debt mature, the ability or inability to refinance on acceptable terms will determine whether businesses restructure, are sold, or enter formal insolvency.”

Smythe said the continued rise of private credit will remain central to that dynamic. “Private credit is shaping not only capital availability, but also restructuring strategy and risk appetite,” she said.

Hewer added that increasingly international creditor groups may look beyond Australia for solutions. “We expect greater exploration of offshore restructuring tools, including Chapter 11, particularly where Australian processes lack flexibility or speed,” he said.

For Ironbridge, the lesson from 2025 is straightforward. “The matters that resolve best are those where specialist advice is engaged early,” Shaw said. “Early engagement preserves optionality. Delay narrows it.”

Fragmented outcomes, consistent lessons

While insolvency outcomes in 2025 varied widely by sector and scale, the underlying lessons were consistent. Creditor selectivity, refinancing pressure, and execution risk now dominate decision-making, while formal processes are no longer the default response to distress. As 2026 approaches, early engagement and credible plans remain the most reliable way to preserve optionality in an increasingly unforgiving market.