Ok, I think we found the root cause.
In SQ 2025.6 we upgraded Microsoft JDBC driver for SQL Server from version 13.2.0 to 13.2.1.
The newer driver version introduced a change which unfortunately exposes a collation conflict in certain Azure SQL configurations.
The error occurs when there’s a mismatch between your Azure SQL Server’s collation and your database collation. While SQ requires the db to use a case-sensitive collation (SQL_Latin1_General_CP1_CS_AS) Azure SQL Server are created with a default collation which is case-insesitive (SQL_Latin1_General_CP1_CI_AS). The mismatch was previously harmless, but the new JDBC driver internal query now trigger a conflict during db migrations.
We will release a bug fix that reverts the JDBC driver to 13.2.0, which does not have this issue.
In the meantime, you can work around this issue by replacing the JDBC driver with the previous version.
Thanks a lot for reporting the issue!