Rising Demand for Bankruptcy Services Amid Economic Uncertainty: Early-Stage Positioning in Legal and Financial Advisory Firms Specializing in Insolvency

The global economy is navigating a turbulent phase marked by inflationary pressures, geopolitical tensions, and the lingering effects of pandemic-era fiscal policies. As businesses grapple with these challenges, insolvency services have emerged as a critical sector, with demand surging to levels not seen since the 2008 financial crisis. For investors, this presents a unique opportunity to position early-stage capital in legal and financial advisory firms that specialize in restructuring, liquidation, and debt management.

The Catalysts Behind the Surge in Insolvency Demand

Between 2023 and 2025, global insolvencies have spiked by 19% year-on-year, driven by a confluence of macroeconomic factors. Central banks' aggressive interest rate hikes—aimed at curbing inflation—have increased borrowing costs, squeezing cash flow for small and medium-sized enterprises (SMEs). Meanwhile, the phasing out of pandemic-era government support programs has left many businesses without the lifelines they relied on to weather earlier economic shocks.

Regional data underscores this trend. In the UK, the Business Distress Index reported that nearly 50,000 SMEs were in “critical financial distress” by Q2 2025, a 21.4% year-on-year increase. Sectors like hospitality, retail, and construction—highly sensitive to consumer demand and input costs—have been hit hardest. For example, the bars and restaurants sector saw a 41.7% rise in critical financial distress, while the construction industry in New Zealand and Germany faced insolvency spikes due to housing market corrections and industrial sector weakness.

The U.S. is no exception. Corporate bankruptcy filings reached a post-COVID peak in July 2025, with 446 cases recorded in the first seven months of the year. S&P Global attributes this to high interest rates, trade policy uncertainty, and inflationary pressures. The ripple effects of a potential trade war further amplify risks, with Allianz Trade projecting an additional 6,800 insolvencies in the U.S. and 9,100 in Western Europe under a full-blown trade war scenario.

The Investment Case: Early-Stage Positioning in Insolvency-Specialized Firms

As insolvency rates climb, legal and financial advisory firms that specialize in restructuring and debt management are poised to benefit. These firms offer services such as out-of-court restructurings, asset liquidations, and creditor negotiations—critical tools for businesses seeking to avoid Chapter 11 filings.

1. Regulatory and Market Tailwinds
The anticipated regulatory shifts under a new U.S. administration could further boost demand for these services. Out-of-court restructuring options are likely to gain traction as companies seek to avoid the reputational and financial costs of public bankruptcy. Additionally, the rise of private credit and alternative capital strategies is creating new avenues for distressed companies to restructure without relying on traditional bankruptcy courts.

2. Geographic and Sectoral Opportunities
The Asia-Pacific region, which saw a 19% surge in insolvencies in 2024, is expected to normalize by 2026, creating a window for firms that can navigate the transition. In Europe, Germany and France—where insolvency rates grew by 23% and 17% in 2024, respectively—remain key markets. The UK's insolvency services sector, meanwhile, is expanding rapidly, with demand for debt restructuring and business rescue plans rising in tandem with SME distress.

3. Long-Term Resilience
While insolvency rates are projected to stabilize in 2025 and decline by 2026 under baseline conditions, the sector's long-term resilience is underpinned by structural trends. For instance, the increasing complexity of global supply chains and the rise of cross-border insolvency cases are driving demand for specialized legal expertise. Firms with a global footprint and digital capabilities—such as AI-driven financial modeling tools—will be well-positioned to capture this growth.

Strategic Entry Points and Risk Mitigation

Investors should focus on firms with strong regional exposure to high-growth markets and a diversified service portfolio. Early-stage positioning in boutique advisory firms that specialize in niche sectors (e.g., real estate, retail) could yield outsized returns, particularly as these industries face prolonged distress.

However, risks remain. A full-blown trade war could exacerbate insolvency trends, pushing global insolvency growth to 7.8% in 2025 and 8.3% in 2026. To mitigate this, investors should prioritize firms with robust balance sheets and a history of navigating economic downturns.

Conclusion: A Sector Poised for Growth

The rising demand for insolvency services is not a temporary blip but a structural shift driven by macroeconomic pressures and evolving business practices. For investors, early-stage positioning in legal and financial advisory firms that specialize in this space offers a compelling opportunity to capitalize on a sector that is both economically resilient and strategically essential.

As the global economy continues to navigate uncertainty, the ability to restructure, adapt, and innovate will define the winners in the insolvency services market. Those who act now—before the sector becomes oversaturated—stand to reap significant rewards.