The following article is a chapter from our latest report, M&A in Motion.
Access the full report here.
2026 will see ongoing distress across the economy especially in construction, ageing new energy projects and manufacturing. Similar to previous years, we anticipate that there will be equally as much informal work outs or restructures as there are formal insolvency appointments. This is often dictated by access to capital, a sponsor’s commitment to the business and cash runway. There remain deep pockets of liquidity amongst credit funds, and the ability to refinance businesses who still have a path back to profitability remains strong. In particular, we anticipate that Victoria will continue to be a hot spot for insolvency and distress as government levies as well as ongoing issues associated with the construction industry create a difficult environment for businesses of all scale.”
Nick Edwards
The Prediction for 2026
The Australian restructuring and insolvency market continues to reflect heightened financial stress across a range of sectors, with elevated levels of formal insolvencies and sustained pressure on underperforming balance sheets. This environment has driven increased restructuring activity, including distressed M&A, recapitalisations and change of control transactions implemented both within and outside of formal insolvency processes. A key theme of the current environment is the growing role of non-bank lenders in enforcement activity, as they increasingly pursue court-based recoveries against distressed SMEs as well as formal enforcement action against underperforming assets while major banks retreat. This shift reflects tighter traditional credit conditions, greater reliance on higher-cost alternative funding, and insolvency levels that now exceed pre-pandemic norms.
Continuing surge in insolvency activity
In particular, across the construction and hospitality industries. ASIC’s 2025 insolvency statistics confirm the persistence of increased levels of external administrations and restructuring appointments, new superannuation laws being introduced in 2026 to incentivise employers to make superannuation contributions contemporaneously with employee payroll payments are also anticipated to increase cash flow pressure on businesses and potentially lead to further insolvency increases.
Distressed M&A execution risk
While appetite for distressed acquisitions remains strong, execution risk has increased. Valuation tension and conditional funding are extending transaction timelines, often narrowing the window for consensual outcomes.
Competition / regulatory law impact on restructuring
Merger control regime reforms effective from 1 January 2026 are expected to increase friction in corporate rescue deals by extending the time required to close restructuring transactions and hereby increasing transaction costs. This may prevent certain restructuring transactions occurring and lead to some companies being placed directly into liquidation rather than voluntary administration.
Informal restructuring
There remains an appetite for informal restructuring (or without the need for formal insolvency appointment) on larger, private equity sponsor-backed matters. This is especially the case where you have sophisticated private capital players and secured creditors who are prepared to take a longer-term view and provide continued support, and the consensus view is an insolvency could destroy enterprise value. Where appointments do occur in these scenarios they are often controlled ‘topco’ or holding company appointments to avoid disruption at the operating level whilst providing the secured lender with control.
Selective capital deployment
Lenders and investors remain cautious, with increased scrutiny on cash flow resilience, working capital management, and asset backing. Capital is being deployed more selectively, favouring businesses with demonstrable pathways to stability over speculative growth narratives. The ability to obtain a refinance or new capital is often the single biggest factor to a company entering into formal insolvency or not, given many businesses lack the ability to obtain an equity injection or indeed sell off non-essential assets for value.
Board risk management and safe harbour
Directors are increasingly engaging early with restructuring advisers to manage personal risk exposure. The safe harbour regime remains a critical tool, enabling boards to pursue turnaround strategies, restructurings, or controlled sale processes as alternatives to voluntary administration or liquidation. In 2026, the superannuation contributions reforms are anticipated to potentially limit access to safe harbour for companies experiencing constrained cashflow and consequently falling overdue for making employee superannuation payments.
Non-bank lender enforcement
Non-bank lenders are increasingly driving court-based enforcement actions against struggling SMEs as well as formal appointments over underperforming assets as major banks scale back their recovery activity. New data from the Alares Credit Risk Insights report shows non-banks have steadily increased court actions since 2019, reaching record or near-record levels through 2023 – 25, while big four bank actions have eased. This shift reflects a structural change in lending behaviour as traditional credit tightens and more SMEs turn to alternative funding, often at higher cost and with stricter enforcement triggers. The Australian Taxation Office continues to be the dominant source of court action, and overall insolvency numbers are rising above pre-pandemic levels. There is less tolerance generally in the market for borrowers with prolonged soft defaults. If lenders do not see a credible path to repayment and reliable information and engagement, patience dissipates quickly.
