USA Trends and Developments Contributed by: Harold D. Israel, Levenfeld Pearlstein
Economic Uncertainty and Distress: Bankruptcy and Non-Bankruptcy Alternatives Available to Businesses The economic landscape of 2025 has proven to be challenging terrain for businesses across many sec - tors. As businesses navigate through the latter half of the year, a confluence of financial headwinds may be pushing many companies towards financial distress notwithstanding the recent interest rate decrease. From tariff uncertainties to contracting labour sup - plies, rising costs to tightening credit markets, busi - nesses are facing an amalgamation of pressures that they have not seen in years. While economists are divided as to whether a recession is on the horizon, there is little question that these headwinds will lead to more financial distress in certain industries and that bankruptcy, or bankruptcy alternatives, will be used to handle this distress. For business owners, executives and their advisers, understanding the tools available to them is crucial for making informed decisions about financial restructur - ing, operational changes and strategic planning. Current challenges facing American businesses The current economic environment presents busi - nesses with a unique combination of challenges that are testing even the most resilient companies. Unlike previous economic downturns that typically had one or two primary drivers, today’s financial troubles are multifaceted and interconnected, creating compound effects that amplify business risks. Tariffs and trade uncertainty Perhaps no factor has created more uncertainty for American businesses than the ongoing questions around tariff policies, with many companies attributing their financial troubles to increased tariffs, including, for example, those in the toy, shoe, home furnishing, automotive and solar industries. According to a report issued on 24 September 2025 by the Organisation for Economic Co-operation and Development, “[t]he full effects of tariff increases have yet to be felt – with many changes being phased in over time and compa - nies initially absorbing some tariff increases through margins – but are becoming increasingly visible in spending choices, labor markets, and consumer prices.”
Companies that rely on international supply chains or imported materials are finding it difficult to create accurate long-term budgets or pricing strategies. The uncertainty is not just about the tariffs themselves but knowing what policies will be in place six months or a year from now. This uncertainty is forcing businesses to either absorb potential cost increases (squeezing margins) or pass them on to consumers (reducing competitiveness), neither of which is sustainable long term. Interest rate volatility and Federal Reserve independence Interest rates continue to be a significant concern for businesses, but the uncertainty has taken on new dimensions. Beyond the traditional questions of whether rates will rise or fall based on economic condi - tions, United States business leaders have expressed concern about the Federal Reserve’s independence. Questions about potential pressure on the Fed to make decisions based on factors other than economic data have created additional layers of uncertainty for businesses trying to plan capital expenditures, refi - nancing strategies and growth investments. The everything-is-more-expensive reality Perhaps the most pervasive challenge facing busi - nesses is the simple reality that everything costs more. High interest rates (even after taking into account the September 2025 rate decrease) and tightening credit conditions make it more expensive to finance opera - tions and growth. Consumer confidence, as set forth in the University of Michigan preliminary Consumer Sentiment Index, slipped for a second straight month as the index fell to 55.4 in September 2025, compared to a market expectation of 58. Lastly, economists have expressed concern that interest rate reductions may increase inflation. Labour market contractions Enforcement of immigration laws is creating labour- supply issues across multiple industries. Sectors that have historically relied on immigrant labour – including agriculture, construction, healthcare, hospitality and food service – are experiencing acute shortages that are driving up wage costs and creating operational challenges. These changes may not be temporary adjustments; they could represent structural changes
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