Distress in the market in 2025 – A year in review

1. Distress and restructuring trends in 2025

The surge of distress and insolvency that occurred in 2024 showed no signs of stopping in 2025. While headline inflation eased to an extent, core or underlying inflation in Australia remained sticky, and businesses continued to face regulatory shifts and global uncertainty. 2025 saw a continued rise in insolvency appointments, with ASIC data reporting over 13,400 companies entering into external administration in the financial year to 31 May 2025, a 34.2% increase from the same period in 2023-24. The construction and hospitality sectors account for a disproportionate share of insolvencies.

As a result, the key trends that we are seeing in the restructuring and insolvency space are: distressed M&A, lenders supporting an operational or balance sheet restructuring, government intervention and concerns about regulation in the private capital space.

This note highlights some recent examples, many of which the Ashurst private capital and restructuring teams have advised on. Our roles have included acting:

• for McGrathNicol, the receivers to the Healthscope companies;
• for certain creditors on their debt-for-equity swap in respect of Accolade Wines;
• for PAG, the major secured creditor of Rex;
• for the secured creditor of Toys R Us;
• in connection with the GenesisCare recapitalisation; and
• for the purchaser of the StrongRoom AI business.

2. Distressed M&A

Persistent headwinds maintained conditions for distressed M&A activity in 2025, particularly with regard to highly-levered, sponsor-backed businesses. Distressed M&A transactions can range from the solvent sale of an underperforming business through to an insolvent sale relying on an external administration process. Naturally, distress for some creates opportunity for others.

Healthscope

The most significant example this year is Healthscope, Australia's second largest private hospital operator, which Brookfield purchased in 2019 for $4.4 billion. In May 2025, Healthscope's lenders (who are owed $1.7 billion) appointed McGrathNicol as receivers. Causes of Healthscope's malaise include significant debt, high rents, increasing costs (including wages and equipment) and a fundamental shift in clinical care models post-pandemic, which means patients are opting for shorter stays and more at-home care. The federal government is said to be watching the sale process closely and remains concerned about potential hospital closures.

Start-ups

This year in the start-up space, software business StrongRoom AI collapsed when its largest investor, EVP, accused certain StrongRoom directors of serious fraud, including misrepresenting its financial position. This triggered a dramatic chain of events that involved EVP commencing legal proceedings and obtaining freezing orders against StrongRoom and some of its directors, the appointment of administrators, a deed of company arrangement, the appointment of receivers by the secured lender and, eventually, liquidation. StrongRoom's business was ultimately sold to Joe Zhou, a pharmaceutical entrepreneur who had acquired most of StrongRoom's debt as part of an acquisition strategy and was supported by EVP. In October, it was reported that Zhou had secured an additional $1.2 million investment from individual pharmacy owners, aged care and hospital operators and private healthcare investors to support the business on a go-forward basis.

These are just a few of the many examples of distressed M&A transactions in 2025.

3. Lenders supporting an operational or balance sheet restructuring

We continue to see lenders supporting operational and balance sheet restructuring in various innovative and creative ways. This is both a strategy for lenders to manage their existing exposure and as an opportunity for distressed debt focused funds, in each case to create a better outcome for stakeholders.

Through 2024 and 2025, a consortium comprising of private capital funds took control of Accolade Wines after purchasing existing debt at a discount and executing a debt for equity swap as part of a broader turnaround strategy. The lenders then led a merger between Accolade and Pernod Ricard's wine business, which was supported by an Australian bank with a $700 million debt refinancing.

Another example was ASX listed Toys R Us, which implemented a recapitalisation by way of a deed of company arrangement proposed by major shareholder, Directed Electronics Australia on 31 July 2025. The terms of the recapitalisation included the senior secured lender, Privity Credit, maintaining a senior ranking in the capital stack.

We also saw Metrics Credit Partners taking ownership and control of Pacific Hunter, which owns various "institutional" restaurants such as Rockpool and Spice Temple in late 2024. Metrics was a key lender when Pacific Hunter was under the ownership of private equity firm Quadrant. Since taking the keys, Metrics has refurbished Rockpool and Spice Temple and re-opened heritage steakhouse, The Cut.

This year, we also saw the refinancing of cancer treatment provider GenesisCare's "take-back debt" with a traditional corporate debt structure. This follows the acquisition of GenesisCare through a debt-for-equity swap pursued by an Oaktree-led consortium as part of GenesisCare's US Chapter 11 restructuring, which was completed in 2024.

With the proliferation of private credit in Australia and ongoing economic uncertainty, we continue to expect to see both existing lenders and interested distressed investors pursuing innovative and creative strategies to drive value in a turnaround context in 2026.

4. Government intervention

A new and significant change in the market has been the emergence of state and federal governments taking an active role in relation to distressed businesses. From significant regional manufacturing businesses to airlines, we have seen a marked change in both the interventionist role played by government and the willingness to provide ongoing support.

In January 2025, the federal government acquired $50 million of debt from private credit fund, PAG, to keep Rex, an ASX listed Australian regional airline, airborne. Following a failed expansion into capital city routes, Ernst & Young were appointed as administrators in 2024. In November 2025, it was announced that Rex's creditors had voted in favour of a deed of company arrangement that will see US-based air services company "Air T" acquiring the embattled airline. The federal government has endorsed Air T's acquisition, with the American provider expected to take legal and operational control of Rex as soon as mid-December. Air T has reportedly reached an agreement with the federal government which includes a variety of commitments aimed at, among other things, preserving the significant number of regional and remote community routes it services (which include transport for freight and medical).

In February 2025, it took just fifteen minutes for the South Australian parliament to pass legislation that granted the government a charge over all of the property of OneSteel Manufacturing (being the entity which owns and operates GFG's Whyalla steelworks), for amounts owed to the government, which allowed the government to put the Whyalla steelworks into administration. Shortly after, the SA Premier and Anthony Albanese made a joint announcement of a $2.4 billion support package to ensure the continuation of the steelworks while the administrators, KordaMentha, searched for a new owner. Government intervention in a (relatively) free market is a step not taken lightly, but against the backdrop of the need to preserve Australia's steelmaking capability, the government highlighted a loss of confidence in the financial capacity of GFG and the more than 1000 jobs at stake to support its rationale to take this step. The administration of OneSteel Manufacturing is ongoing.

5. Regulation in the private credit space

Australia's private credit market, which is estimated to have around $200 billion in assets under management, has come under increasing regulatory scrutiny this year.

As has been widely reported, in September 2025, ASIC released a report on private credit in Australia (REP 814) citing certain questionable practices across the sector, failures in transparency and disclosure, concerns around valuation practices, related party transactions, governance shortcomings and unequal investor treatment. In extreme cases, we have seen ASIC issue interim stop orders preventing further retail offerings for certain managers.

We expect ongoing action from the corporate regulator in 2026 in relation to certain players in the market which are not satisfying the applicable standards. We also expect to see some consolidation in the market as a result of a combination of the various headwinds that continue to face certain funds and the additional regulatory scrutiny.