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ANNUAL REVIEW

Bankruptcy & Restructuring 2018

June 2018  |  BANKRUPTCY & RESTRUCTURING

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While in many jurisdictions the number of formal bankruptcies and insolvencies has remained relatively low and flat, there have been a number of high-profile restructurings in key sectors in major markets. In the UK, where confusion over Brexit still reigns and inflation remains high, the construction sector has been the focal point of much debate. The insolvency of the nationally significant construction services company Carillion attracted significant attention, as did the collapse of Monarch airlines in late 2017. These and other insolvencies have again raised the question of the creation of a US-style Chapter 11 bankruptcy regime in the UK.

 

UNITED STATES

Tinamarie Feil

BMC Group, Inc.

“The challenges of high debt loads persist and parties are seeking to avoid the cost of protracted combative restructurings. Out of court distressed exchanges are being driven by the presence of private equity, growing distressed debt asset classes, weakened corporate debt covenants and incentives by senior lenders, who strengthen their own position after distressed exchanges. Business filings overall have been flat, however the number of Chapter 11s has increased slightly by about 5.5 percent. Actual Chapter 11 filings tend to favour pre-packs and asset sales.”

 

ARGENTINA

Fernando Hernández

Marval, O’Farrell & Mairal

“Since 2015, the number of insolvency proceedings in Argentina has continued to decline, and, except for some specific cases, there are no current proceedings involving large companies or particular industries. However, since 2016, 138 companies from different industries and of different sizes have filed for crisis prevention procedures before the labour ministry, including one of the largest retail supermarket chains. Crisis prevention procedures are aimed at implementing a restructuring through the reduction of personnel in order to avoid insolvency.”

 

UNITED KINGDOM

David Bryan

Bryan, Mansell & Tilley LLP

“Formal insolvencies in the UK have been low for many years. The latest figures for Q1 2018 show a small uptick, but though percentages can look high they are from a low base, and the figures are broadly stable. The ‘Red Flag’ report for Q1 2018 on companies in significant financial distress shows a 33 percent year-on-year increase from 2017. The most noticeable adverse trend is in consumer-facing businesses. Political uncertainty and changing shopping habits have created falling demand for traditional retailers and this, coupled with a variety of increased costs, is causing difficulty for those businesses that rely on consumer spending.”

 

FRANCE

Jean-Pascal Beauchamp

Deloitte

“Over the last 18 months, insolvency proceedings have been on a declining trend in France. Much like 2016, last year was characterised by a declining number of threatened jobs and insolvencies. In 2017, the number of insolvency proceedings reached 55,175, the lowest since 2007, the year before the financial crisis. This observation is true whatever the size of the company, and only 92 judiciary proceedings were opened in favour of companies with revenues in excess of €15m.”

 

NETHERLANDS

Sigrid Jansen

Allen & Overy

“The Dutch economy is growing. Statistics Netherlands claim that it grew by 3.1 percent in 2017, which is the strongest growth in 10 years. As a result, we are seeing fewer bankruptcies in the Netherlands than during the height of the financial crisis. According to the Dutch Central Bureau for Statistics, 3290 companies were declared bankrupt in 2017. This is a quarter less than in 2016 and the lowest number of insolvencies since 2000. We saw a peak in the number of bankruptcies in May 2013 and since then that number has declined by 61 percent.”

 

SPAIN

Andrea Perelló

Cuatrecasas

“While the US and UK bankruptcy regimes are known for being creditor friendly, the Spanish Bankruptcy Act (SBA) seeks not only to protect creditor’s interest, but to protect the viability of the business as a way of maintaining its economic value. Thus, the SBA advocates for regulation where the debtor remains in possession and control of the company, its assets and its activity. In this regard, debtors under the SBA may seek to restructure their indebtedness. Moreover, once bankruptcy proceeding have begun, the debtor is entitled to petition for liquidation at any time. At the same time, creditors also have certain rights under the SBA, such as proposing a composition agreement.”

 

PORTUGAL

Manuel Requicha Ferreira

Cuatrecasas

“The number of insolvency filings decreased significantly in 2017, down 23 percent on 2016 and, although there was a slight increase in January 2018, there has been a further decline in the subsequent months. The recovery of the economy and the stabilisation of the financial and banking sector, following the measures taken by the government and the central bank, has allowed companies to recover financial strength, access credit and improve sales revenues. However, there has been an increase in the number of insolvencies involving large companies – those companies with revenues above €50m, which is in line with the European trend of a reduction in the overall number of insolvencies.”

 

GERMANY

Carl Pickerill

Kirkland & Ellis International LLP

“With a handful of notable exceptions, the volume of business failures and bankruptcy filings has been subdued in Germany. Recent reports indicate that the absolute number of business bankruptcies dropped to its lowest level in nearly a quarter century in 2017, and that trend has not changed in 2018. Those that have filed have had relatively small estate sizes. Only one major corporate insolvency over the last 12-18 months, Air Berlin, featured a debtor with over €1bn of yearly revenue and aggregate debt. A second, Solarworld, a manufacturer of photovoltaic products, filed with over €800m in yearly revenue and over €500m in debt.”

 

AUSTRIA

Thomas Trettnak

Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

“In 2017, the number of businesses filing for insolvency decreased slightly. There were 5079 applications for insolvency proceedings filed in Austria, down 2.8 percent compared to 2016. In total, 3025 companies began insolvency proceedings, while a further 2054 companies saw their proceedings dismissed due to lack of assets to cover costs. The approximately 5000 insolvent companies recorded in 2017 was the lowest number seen in the last 20 years. The decrease in failing businesses in 2017 becomes particularly clear when you consider that there are approximately 430,000 operating companies currently incorporated in Austria, excluding one-person businesses.”

 

ROMANIA

Speranta Munteanu

KPMG

“Recently, the number of failing businesses and bankruptcy filings has dropped significantly, mainly regarding relatively large companies. However, most bankruptcy filings concern small to medium enterprises (SMEs) and Romania is among the European countries with the largest number of SMEs. The number of bankruptcy filings during the last 12 to 18 months is approximately 900, but only a small percentage of these, roughly 5 percent, are companies with a turnover exceeding €1m. Due to the complex procedural aspects of insolvency legislation, although essentially sound, for more complicated situations, creditors prefer to explore alternative solutions, informal as they may be, for restructuring the debt of more complex businesses.”

 

RUSSIAN FEDERATION

Alexei Dudko

Hogan Lovells

“The tightening of bank and other financing, as well as aggressive state tax policy, has taken its toll on business. Over the last year, court bankruptcy filings have significantly increased. In 2017, the number of bankruptcy filings exceeded those seen in 2015 and 2016 and this trend clearly reflects the existing economic difficulties that resulted in a wave of failing businesses.”

 

CHINA

Zheng Zhibin

Dentons

“In China, the amount of bankruptcy cases accepted by the people’s courts in 2016 was 5665, an increase of 53.8 percent over the previous year. Among them, the number of reorganisation cases grew by 85.2 percent to 1041. In 2016, the people’s courts concluded 3602 enterprise bankruptcy cases, which rose by 60.6 percent from 2015. Meanwhile, the number of reorganisation cases concluded increased by 43.4 percent to 525.”

 

SOUTH AFRICA

Alex Eliott

Hogan Lovells

“The South African economy has been particularly weak and fell into technical recession for two quarters in 2017. This was substantially due to poor political leadership and the perception that the leadership of the governing party was corrupt. Investors generally were reluctant to release cash. The consequences included a virtual standstill in domestic investment. There was an increase in bankruptcy filings and a dramatic drop in business rescue filings. The other countries in the Southern African Development Community (SADC) region are significantly affected by the health of the South African economy – for example, Lesotho and Swaziland are almost entirely dependent on South Africa.”


CONTRIBUTORS

Allen & Overy

BMC Group, Inc.

Bryan, Mansell & Tilley LLP

Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

Cuatrecasas

Deloitte

Dentons

Hogan Lovells

Kirkland & Ellis International LLP

KPMG

Marval, O’Farrell & Mairal


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