Structural challenges in economy drive elevated levels of distress

Insolvency appointments rose by 9% in 2025, and we expect this trend to continue. With input cost inflation and declining labour productivity growth putting pressure on businesses, distress will remain elevated and likely increase. While pressure will be felt across the economy, some sectors will be particularly impacted including hospitality, retail, construction and the disability sector.

Global geopolitics continues to create business uncertainty, including tariff volatility, US–China tensions and consequent flow-on impacts on supply-chains. Locally, inflation remains stubbornly high.

Australia’s declining labour productivity growth rate remains a key challenge too for business leaders looking to manage rising wage costs. Unless higher wage costs can be passed on as price increases, margins will continue to be squeezed.

Industry focus

In the hospitality and retail industries, high inflation and the threat of future interest rate increases are already dampening consumer spending. Both sectors have experienced large-scale insolvencies recently. Throughout H1 2026, we anticipate a period of ‘lower for longer’ consumer sentiment.

Wages, operating costs, rent, utilities, and additional interest rate rises will make things challenging for businesses reliant on discretionary spend.

The construction industry experienced significant financial distress in 2025, albeit at levels consistent with the year before. Conditions will vary across states and territories, although we expect challenges around labour shortages and materials inflation to persist.

The disability sector is under strain. Over the past decade, the National Disability Insurance Scheme (NDIS) program has expanded exponentially. To remain sustainable, the Federal Government has implemented structural reform and recent changes to the sector’s funding structure. Like aged care, any industry that is heavily reliant on grants or government funding will be susceptible to financial distress whenever these arrangements change. Larger operators can afford to be innovative and create efficiencies that make it difficult for smaller operators to compete. These factors will continue to drive consolidation in the sector.

Prepare for extended sales timelines

The implementation of the ACCC merger control regime may prevent transactions that otherwise could have helped a company to avoid insolvency. From 1 January 2026, it is mandatory for businesses to notify the ACCC of certain acquisitions and wait for approval to proceed. While aimed at preventing anti-competitive behaviour, this new requirement and longer approval timelines may also impact sales processes in an insolvency context.

Key actions to take

• Know your market – stay on top of trends and focus on providing your customers with value. Create efficiencies where you can without compromising on the quality of products or services

• Understand your liquidity – strengthen your cash flow forecasting and monitoring. Too many businesses monitor earnings, but not cash. Insolvency occurs when you’re unable to pay debts as they fall due, i.e. when you run out of cash

• Engage expert advice early – speaking with experts early means you will have a clearer line of sight to cash flow, forewarning of distress, and likely more options to address it