What to Expect in Australian Insolvency in 2026

By B&T Advisory Team

After a demanding year for advisers and business owners alike, the consensus is clear: pressures are not easing, and for many small and medium businesses, the coming year may be even more challenging.

A Prolonged Post-COVID Hangover

While headline economic indicators may not signal a sharp downturn, many businesses are trading month to month, with the lingering effects of pandemic-era support still evident, particularly through legacy tax debts.

At the same time, cost pressures remain stubbornly high. Rising energy, labour, and rent costs continue to plague sectors that have struggled in recent years, including hospitality, transport, and construction.

Small Business Restructuring: Still Vital, But Harder to Achieve

Small Business Restructuring (SBR) remains a central feature of the insolvency landscape, but its role is evolving. After a slowdown in 2025 driven by tougher creditor behaviour, particularly from the ATO, there are signs SBR usage may rise again.

The shift we saw last year brought heightened scrutiny of a company’s tax compliance history and balance sheet ‘red flags’ such as director/related party asset loan positions. In practice, this has meant that proposals we would previously have considered a ‘good chance’ have been rejected.

If this approach continues, expected flow-on effects include:

• An increase in restructures and voluntary liquidations as a result of rejected SBR proposals.
• An increase in voluntary administrations / DOCA appointments as a workaround.
• Companies seeking alternative insolvency advice and strategies to deal with their tax liabilities.

Despite this shift, there is an expectation that restructures will again increase as a percentage of overall insolvency appointments. However, expectations must be realistic.

As we learned over the last year, the days of 15–20-cent-on-the-dollar dividends are long gone, even where businesses have genuine operations and a strong lodgement history. SBRs remain important and should be considered for most small businesses in financial distress when assessing their options.

Sydney and the Broader Economic Backdrop

In Sydney, these insolvency pressures are being amplified by global and domestic uncertainty. Uncertainty surrounding current world conflicts is dampening economic activity, while the likelihood of upcoming interest rate hikes is keeping consumers cautious.

Reduced discretionary spending is expected to affect the retail and entertainment sectors, and tighter credit conditions mean that domestic businesses will find it harder to secure lending, potentially resulting in foreclosure or outright closures due to unserviceable debt levels.

Cost Pressures, Credit Tightening, and Creditor Behaviour

Over the next 6–12 months, interest rates, costs, and creditor behaviour are expected to continue to shape insolvency activity.

Wages, rent increases, and electricity and gas costs are squeezing margins, while customers face reduced purchasing power.

Creditors are also tightening their stance. We hear that the ATO won’t be cutting back on firmer action any time soon and many clients are seeing their trade credit terms reduced and/or not approved in the first place.

The Critical Role of Lawyers and Accountants

Lawyers and accountants remain central to navigating financial distress. A significant proportion of our referrals come through lawyers and accountants, reflecting their role as trusted advisers.

Accountants are increasingly at the coal face with clients, with real-time access to financial data and the trust of business owners. We see many business directors get stuck looking at revenue (incl. GST) and can’t understand why their business is struggling. Accountants play a key role in reinforcing the view that profitability is everything.

Similarly, lawyers are often engaged early, particularly where disputes arise. As matters escalate, lawyers should engage with their clients on the risks of further escalation and its implications for the business’s solvency.

Rethinking Assumptions About Insolvency

One of the most important mindset shifts for advisers in 2026 is moving away from reactive thinking. Advisors need to be proactive rather than reactive.

There is also a need to challenge outdated assumptions. That insolvency is a failure or bad thing is one such belief. In reality, some viable businesses still struggle and need a reset, and a restructure or insolvency can help deal with legacy debt and provide a new beginning.

Early action matters. Early action reduces unnecessary stress and costs and, in most cases, affords the director more options, particularly while current restructuring regimes remain available.

Characterising the Landscape Heading into 2026

From our perspective, the insolvency and restructuring landscape heading into 2026 is defined by sustained pressure, heightened creditor scrutiny, and a narrowing margin for error. It will remain a busy period, likely busier than the prior twelve months, with the industry still catching up after COVID-19 and the Government measures implemented to protect businesses.

The notorious quiet period in December and January didn’t occur, in fact they were above average months for B&T Advisory and that will lead into a busy year ahead.

SMEs are doing it tough, often through no fault of their own, and outcomes will increasingly depend on early engagement, strong compliance histories, and realistic restructuring strategies. While insolvency is no longer viewed solely as an endpoint, the window for effective intervention is tightening – making preparedness, collaboration, and decisive action more critical than ever in 2026.