Insolvency & Restructuring Review 2026-27

Introduction

In this article, we review developments in restructuring and insolvency in Australia over the course of 2025, discuss the emerging themes for 2026 and address the formal and informal tools available to directors, lenders and other stakeholders to navigate cashflow issues in the current environment.

Australia is a trade-dependent economy strongly influenced by international forces. Geopolitical developments over the past 12 months, including tensions in the Middle East, have recently rocked global energy markets at a time when Australia was already in the midst of a challenging (and expensive) energy transition.

Supply security and inflation have become key issues for Australian businesses in this environment. At the same time, tighter debt markets, higher interest rates and constrained household budgets are affecting the viability of businesses across a range of sectors, most notably construction, logistics, mining and retail.

As a result, Australia has experienced an increase in formal insolvency appointments over the last 12 months. Similarly, informal restructuring activity has increased, although data in relation to this is not publicly available.

Alongside this, secured lenders in Australia continue to make regular use of receivership as a tool to realise company assets where loans are unable to be serviced within terms. The ongoing elevated use of receiverships in recent years is consistent with the maturing of Australia’s growing private credit industry.

Private credit has grown to become a significant source of finance, especially in relation to property development in Australia. This higher-risk lending is an area banks have retreated from while private credit has grown. The maturing private credit industry is now managing the fallout of construction-related inflation which has unravelled the business cases for many developments.

In addition, the regulatory environment has shifted and tightened in Australia after the end of the COVID-era stimulus period. The Australian corporate regulator, the Australian Securities and Investments Commission (ASIC), has strongly signalled an intention to place more scrutiny on the private credit industry.[1] At the same time, the Australian Taxation Office (ATO) has stepped up enforcement action, which we anticipate is a trend set to continue in the next 12 months.

In summary, there is no shortage of current pressures on Australian directors, many of which are simply beyond their control. In this environment, the flexibility of Australia’s formal and informal restructuring tools is being put to the test, as directors, lenders and other stakeholders seek creative solutions to maintain enterprise value.

Australia has a diverse suite of formal and informal restructuring and insolvency tools suitable to address these circumstances. These range from informal turnaround projects under the protection of the ‘safe harbour’ regime, through to formal restructuring via voluntary administration and deeds of company arrangement and, in irretrievable scenarios, liquidation.

Restructuring and insolvency themes in 2025

During 2025, headline inflation temporarily eased, which fuelled speculation of an interest rate cutting cycle. As it happened, while the Reserve Bank of Australia did provide some rate cuts, the rate cutting cycle has now reversed as cost volatility and geopolitical disruption have seen inflation spikes in multiple industry sectors.

Consequently, numerous businesses, particularly in the retail, logistics, manufacturing and construction sectors are facing tighter liquidity and increasing financial distress. Sustained higher interest rates have compounded these pressures. Businesses that refinanced during the low-rate environment during and after the COVID pandemic faced materially higher debt service costs on rollover, squeezed operating margins and eroded covenant headroom.

According to ASIC, 9,300 companies entered external administration in the year to 28 February 2026, a 76% increase on the previous five-year average.[2]

These are formal, public, external insolvency appointments. These figures do not include informal workouts. Our experience over 2025 was that company directors increasingly made use of informal restructuring processes, under the protection of Australia’s safe harbour regime, to address solvency concerns.

Increasing use of safe harbour in 2025

Company officers in Australia face personal liability for the debts incurred by a company if the company is insolvent, or becomes insolvent, when the debt is incurred. This is a considerable risk, and it is typically addressed in one of two ways.

1. the directors can appoint voluntary administrators and commence a formal external administration process which may end in a public restructuring by way of deed of company arrangement or may end in the liquidation of the company[3].
2. increasingly, the directors may seek to consensually and privately restructure or repair the company by implementing a turnaround plan under the protections offered by Australia’s so-called ‘safe harbour’ regime.

The safe harbour regime ultimately protects directors from liability for insolvent trading where they can demonstrate they incurred debts or continued to trade in pursuit of a turnaround plan which was reasonably likely to lead to a better outcome than the immediate voluntary administration or liquidation of the company.

The safe harbour reforms introduced in 2017 have had slow adoption by directors. That seems to have changed in response to the macroeconomic and industry pressures summarised above.

Our experience has been that directors are now more confident in proceeding with informal, private turnaround plans under the protections of the safe harbour regime. In doing so, directors and other stakeholders enjoy greater privacy, flexibility and control than under the compulsory external procedures associated with voluntary administration. Costs can also be more carefully managed.

As a result, early intervention is increasingly the market norm and boards are pursuing informal, private restructures aimed at stabilisation and value preservation by:

• refinancing or negotiating commercial contracts and payment plans; and/or
• an increasing resort to “unconventional” financing options associated with the burgeoning growth of private credit (including facilitation of debt-for-equity swaps).

Increasing use of loan-to-own strategies in 2025

Loan-to-own restructures are an increasingly common feature of Australian workouts (both as part of an informal consensual workout or via formal restructuring via a deed of company arrangement (DOCA)). The strategy is straightforward: acquire a debt position with a view to converting it into equity and, ultimately, control. Loan-to-own is now being used more frequently by corporate buyers and lenders seeking to shape outcomes in insolvency and near-insolvency settings.

Australia’s secondary debt market remains less liquid than those in the US and Europe, but private credit’s expansion is changing the dynamics. More participants and more multi-lender facilities drafted with transferability in mind have made debt trading (and strategic positioning) easier, supporting greater local use of loan-to-own strategies.

Loan-to-own outcomes are being executed through:

• Consensual restructures;
• Schemes of arrangement; and
• DOCAs.

Maturation of private credit in 2025

Private credit has reshaped Australia’s funding landscape over the past decade – offering speed, flexibility, and a greater willingness to underwrite risk than traditional lenders. The Australian private credit market is presently estimated at approximately AUD $220 billion, heavily concentrated in commercial real estate, asset-backed lending and direct corporate loans. Capital raising sources also continue to diversify, encompassing superannuation funds, institutional investors, insurers, family offices and high-net worth “angel investors”.

These features delivered strong returns in benign conditions, but have also exposed structural vulnerabilities as credit conditions tightened post-COVID. In several high‑profile cases, significant valuation write‑downs have unsettled investor confidence and highlighted a persistent concern: deterioration in borrower credit quality is often recognised well before it is reflected in reported fund valuations.

The failures of First Brands Group and Tricolor in late 2025 illustrate how distress in highly leveraged, private-credit-financed businesses can transmit across portfolios, triggering write-downs, valuation resets and further redemption pressure.

Private credit will remain central to restructuring activity in 2026, but in a market that is less forgiving and subject to increased regulatory scrutiny. Lenders and borrowers can no longer assume continuously available liquidity or stable valuations. Restructuring practitioners should expect private credit to feature prominently in distressed scenarios under heightened regulatory oversight. In this regard, the significant expansion of private credit has already facilitated an increased incursion of international restructuring firms into the Australian restructuring market.

The ongoing relevance and usefulness of Voluntary Administration and DOCAs in 2025

Voluntary Administration (VA) remains the predominant method for compulsory restructuring in Australia. It involves the formal appointment of an external administrator to the company, following which:

1. the company enjoys a moratorium on creditor action (including the termination of contracts based upon insolvency);
2. the administrator can run a competitive sale process, negotiate recapitalisation, and/or consider any turnaround proposals;
3. the administrator reports to creditors who ultimately determine the future of the company in a voting process. Creditors must choose between approving a DOCA, a return of the company to director control, or liquidation – and they must do so within a compressed timetable. That deadline concentrates minds, accelerates negotiations, and generates deal pressure that is difficult to replicate outside a formal appointment.

Australian courts have shown a consistent willingness to support the VA process and tailor the application of the statutory regime to the circumstances of different enterprises. For example, courts regularly extend statutory timeframes to facilitate complex, multi-party restructurings that would not fit within the standard VA timetable. That judicial pragmatism, combined with the moratorium protections and the compulsory nature of the VA process, make it a powerful and flexible tool for restructuring in Australia.

If the majority of creditors in number (and value of debt) approve a DOCA, the implementation of the DOCA’s terms can achieve outcomes that are often impossible outside a formal process. For example, DOCAs can be used to transfer shares to creditors in exchange for a release of debt, either with shareholder consent or with leave of the Court.

Recent cases, including the Toys “R” Us restructure discussed below, reinforce judicial support for pragmatic, creditor-focused outcomes in Australia.

In Clubb (Deed Admin), Toys ‘R’ Us ANZ Ltd (Subject to Deed of Company Arrangement), Re [2025] FCA 1135, the Federal Court considered the scope of a DOCA used to implement a change of control.

In that case, the creditors of a major toy retailer approved a DOCA proposal that contemplated transferring the issued shares to a special purpose vehicle, notwithstanding that shareholders would receive no return under the proposed arrangement.

An application was made to the Court to facilitate the implementation of the DOCA. The Court had to consider whether it had the power to approve the transfer of equity-linked instruments – including share options, warrants and analogous instruments that were contingently convertible into shares – so that they could be transferred or cancelled as part of the restructure.

The Court approved the application, enabling the deed administrators to deal with those instruments as part of the DOCA implementation process.

This decision illustrates that DOCAs can be used as effective control-transaction tools. Where creditor interests are properly protected and there is no unfair prejudice to members (or holders of other forms of equity), the courts have shown a pragmatic willingness to support commercially driven outcomes, including outcomes that involve the transfer or cancellation of a variety of equity-linked “hybrid” instruments (and not just shares) as part of a change of control restructure. Such a trend is likely to be more pervasive in industries featuring frequent use of such instruments to quickly raise working capital without immediately diluting equity. Key examples here will likely include ESG-affected capital-intensive sectors such as oil and gas, which require significant upfront investments for development and exploration programmes and whose funding options are increasingly more limited and complex.

Correspondingly at the other end of the ESG spectrum, we expect the renewable energy sector to feature an increased incidence of DOCA-led change of control restructures, including as part of loan-to-own strategies. A key driver here is the significant curtailment of solar and wind farm dispatch into the National Energy Market in response to constrained energy transmission or storage infrastructure despite many of the financial models underpinning the financing of those projects typically assuming minimal curtailment. A prime example of this problem is the “rhombus of regret” region in northwest Victoria featuring numerous solar farms experiencing severe grid connection delays and curtailment of at least 50%,[4] resulting in the likelihood of severe losses for current investors in those projects.

Increasing regulatory scrutiny in 2025 and 2026

After taking a fairly benevolent approach during the COVID era, over the past year, the ATO has materially increased enforcement activity. Winding up applications are up across the board, with more than one-third now initiated by the ATO.

The ATO has also intensified its focus on community tip-offs about tax avoidance, with reported increases in red flags across the construction, food services and retail trade industries.[5] In response, it has committed to taking firmer action against evasion and using the full suite of recovery tools available,[6] including issuing statutory demands and garnishee orders, serving director penalty notices and commencing winding up proceedings.

Increasing government intervention in 2025 and beyond

In a theme we expect to continue into 2026 and beyond, government intervention has increased where distressed operators are viewed as economically critical or nationally significant.

By way of example, the South Australian and Commonwealth Governments elected to jointly intervene to rescue the Whyalla steelworks. The Whyalla steelworks, produces more than 75% of Australia’s structural steel used in major infrastructure projects. It also employs around 1,500 people in regional South Australia.

Following default in the payment of unsecured royalties and water charges (alongside other trade debts reported to be at least $300 million), the South Australian Government moved to force the company into external administration. The appointment was enabled by urgent amendments to the Whyalla Steel Works Act 1958 (SA), with further amendments elevating the State to a first-ranking secured creditor and conferring a right to appoint administrators.

The intervention to rescue the Whyalla steelworks illustrates how swiftly the “rules of the game” can shift when governments are prepared to legislate to protect a strategically important asset. For secured and unsecured creditors alike, the case is a reminder to price in sovereign risk, including the risk of priorities being upended mid-process, even in historically anti-interventionist and creditor-friendly countries like Australia.

Emerging themes for 2026

We anticipate that the next 12 months will be shaped by the following key themes:

1. ongoing distress in certain sectors e.g. mining, logistics, retail and construction;
2. increasing formal insolvencies;
3. interest rate and inflation pressures;
4. flow-on effects of the Iran war and high diesel prices; and
5. potential flow-on effects of Artificial Intelligence (AI) as workplaces adjust to the future.

Sustained higher interest rates, inflation and supply chain issues (particularly liquid fuels) combined with low business confidence and constrained household budgets are now creating headaches for Australia’s Reserve Bank, company directors, lenders and Australian households.

It is a common sight on trucks in Australia to see a bumper sign which reads “Without Trucks, Australia Stops”. In 2026, without diesel, the trucks stop, the freight trains stop, the excavators and rock trucks stop, the tractors stop and exports stop. For a country whose prosperity relies in large part upon growing, raising or digging up and then shipping around commodities, it is hard to overstate the significance of diesel to the Australian economy. The acute nature of this exposure has been heightened by the unfolding news at the time of publication of this article of a major fire at one of Australia’s two oil refineries, which is likely to significantly impair Australia’s petrol and diesel production in the short to medium term.[7]

As a core input cost for transport, logistics, construction, mining and agriculture, sustained diesel price increases will flow rapidly through supply chains, widening operating cost gaps, compressing already thin margins and accelerating cash burn in sectors with limited capacity to pass costs on to end consumers.

For transport-heavy and regional businesses in particular, the effect is compounding: higher fuel costs coincide with the same interest rate and wage pressures described above, creating multiple simultaneous stress points that are difficult to manage without operational restructuring or external intervention.

The other great source of Australia’s prosperity is the brains of the nation – our highly skilled and educated workforce. Australia has a hugely valuable white-collar services industry. That industry too, faces headwinds, as the rollout and adoption of AI brings both opportunities and risks. It remains to be seen how the adoption of AI by Australia’s services industry will play out, but if it unfolds in a way that results in a significant increase in unemployment (temporary or otherwise), the risks to retail businesses and other businesses reliant upon discretionary consumer spending will only increase.

What’s next?

We are obviously not economists or market forecasters. However, as restructuring and insolvency lawyers, we are keenly attuned to current and emerging market and industry trends and issues. As summarised above, these market conditions present a panoply of risks, but also corresponding opportunities which Australian restructuring mechanisms (both informal and formal) are reasonably well-placed to facilitate.

This article was originally prepared for Beaumont Capital Markets and forms part of the International Insolvency & Restructuring Review 2026–27. Access the full publication here.

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Authored by:

Pravin Aathreya, Partner
Clementine Woodhouse, Special Counsel

[1] ASIC Report 820: ‘Private credit surveillance report: Retail and wholesale surveillance’, 5 November 2025.

[2] Business insolvencies stabilising after post-pandemic spike, says RBA | Accounting Times; The rise in retail insolvencies | Grant Thornton Australia.

[3] Voluntary administration can also end with control of the company returning to its directors without there being a deed of company arrangement, but this is very rare in practice.

[4] Australian Energy Market Operator, 2025 Enhanced Locational Information Report (Report, July 2025) at [7.3], pp.97-100.

[5] ATO guidance regarding tip-off procedures and results, 7 November 2025, accessible at: Making a tip-off | Australian Taxation Office.

[6] ATO guidance regarding firmer enforcement measures, 5 January 2026, accessible at: Firmer action we may take | Australian Taxation Office.

[7] “Major fire at Australian oil refinery to impact nation’s petrol supplies”, BBC, 16 April 2026, accessible at: Geelong fire: Blaze at Australian oil refinery to impact petrol supplies; “’Equipment failure’ to blame for Viva refinery blaze: firefighters”, Australian Financial Review, 16 April 2026, accessible at: LIVE UPDATES: Geelong oil refinery fire at Viva Energy caused by equipment failure; facility a major hazard. according to Australian Workers’ Union.