By Nitin Joshi, Partner Antony Batty & Company
This article looks at how the rapid rise of artificial intelligence is creating two distinct risks for company directors, the risk of being out-competed by AI-enabled rivals, and the risk of over-investing in AI. Either way the effect of the AI insolvency risk to a business could be devastating.
A major issue that we often see is the over-reliance on free AI tools, which as we show below can very often send directors in the wrong direction when attempting to deal with financial problems.
As always, we recommend that expert insolvency advice is sought when directors discover that the business strategy that has been adopted is seriously flawed.
AI adoption is accelerating fast
Small businesses have adopted AI at a startling pace. UK adoption rose from 22% in 2025 to 47% today, according to Simply Business’s 2026 SME Insights Report. The impact cuts right across every aspect of a company: marketing and creative; operations and administration; customer service; finance and bookkeeping.
There are competitive and financial AI insolvency risks, however
The risks are real. Typically, larger companies have the capital to integrate AI, reduce their own prices, and run AI centred client operations every minute of the day. It is not so much the company itself, more that competitors will become highly efficient, leaving others behind.
Over-investment by small companies is equally not advisable. MIT’s Project NANDA found that 95% of organisations investing in generative AI have seen no measurable return.
On AI start-ups, we have seen a marked increase in company failure. Development costs have risen, and investor funds have dried up. Often, the millions that have gone in amount to little or no realisable value once the company enters formal insolvency proceedings.
Free AI advice? Be careful, very careful!
As far as directors seeking insolvency advice from free AI tools goes, we have a warning.
Free AI tools are not the way to obtain competent insolvency and restructuring advice. By taking internet-driven advice, owners travel potentially on a dangerous path which may lead to unretrievable consequences.
We have seen some recent examples:
- Preference payments. In one case we saw, the directors made what were plainly preferred payments when there were large creditors sitting in the room. Preference payments in insolvency are one of the most important things that directors must avoid and can end up in a liquidation claim against the director and possible director disqualification. Read our article about preferences in insolvency and why directors must avoid them.
- About dividend payments. We have seen several cases where the AI advice to directors was to make dividend payments when creditors had not been settled, because the directors thought it was fine to recover months of unpaid remuneration instead. Dividend payments can only be made if the profits are there to allow them. There are potentially serious consequences of paying illegal dividends, even if the payment was accidental or unintentional, which can include misfeasance claims and director disqualification. Take a look at our article about the consequences of paying illegal dividends.
- Transactions at an undervalue. We have also seen this issue several times. The disposal of company assets at undervalue happens when a company, while insolvent or about to become insolvent, gives something away or sells it for significantly less than it is worth. Read our article about transactions at undervalue and why directors must avoid them.
Sectors most affected
The rise of AI has affected every industry sector. However, the sectors that have been most affected so far are: legal and compliance services, administrative support operations, creative and copywriting agencies, customer relationship centres, and entry-level programming businesses.
It is a fast-moving picture, however. We have seen shifts on a daily basis. For example, in areas that require routine document drafting, contract review, and basic tax filing.
Managing AI insolvency risk means not relying on free AI tools for advice
You may need us if your business has suffered because competitors have got ahead of the game, similarly, if the investment you have made has not produced a return, which has led to financial problems, and an AI insolvency risk.
As Nitin Joshi says:
“In the last year alone, we have dealt with scores of companies using online trading platforms. They think they have invested in an AI bandwagon, but in reality , it’s a wheelbarrow. Low quality AI models usually do not work.”
If you are concerned your company is in financial difficulty and insolvency is looming, talk to our experienced Licensed Insolvency Practitioners for help and advice and do not rely on free AI tools. The initial discussion with us is free of charge and without commitment.
