Middle East crisis, rate increases reignite insolvency concerns

Insolvency rates for the first six months of the 2025–26 income year have been broadly flat, but Insolvency Australia has warned that the increased strain on businesses from the Middle East crisis, interest rate rises, and enforcement activity could drive an increase in insolvencies.

Insolvency Australia's latest Corporate Insolvency Index indicated there were 7,413 corporate insolvency appointments recorded nationally for the six months to 31 December 2025, broadly in line with the same period last year.

However, Insolvency Australia director Gareth Gammon said while there was stability in the headline numbers, this should not be mistaken for improving conditions.

“The numbers might look flat, but the pressure is still building. Costs are rising again, confidence is fragile, and creditors are clearly back in the market,” Gammon said.

Gammon said the second half of 2026 is expected to remain challenging.

“With rate increases continuing, geopolitical pressures feeding into input costs, and enforcement activity staying high, there is a real risk that conditions tighten further before they improve,” he said.

Insolvency Australia said the latest data also points to a shift towards more formal enforcement and increased creditor action.

It noted that there was a 19 per cent increase in court-ordered liquidations and a 15 per cent rise in controller appointments, highlighting a "clear return to creditor action from both the ATO and secured lenders as more businesses are pushed into formal processes.

Gammon said Insolvency Australia was seeing a shift from businesses trying to trade through to more being pushed into formal outcomes.

Creditors’ voluntary liquidations still remain the most common appointment type, with many directors recognising when a business is no longer viable and taking steps to wind it down properly.

Small business restructuring appointments have declined by 35 per cent, suggesting the initial surge in uptake has eased, and that timing is becoming more critical for those looking to pursue turnaround options.

“Small business restructuring has been and will continue to be a valuable tool, and the best outcomes for all stakeholders are typically achieved when directors act early,” Gammon said.

“Leave it too late and those options narrow, and in some cases you end up in a liquidation that could have been avoided.”