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The number of corporate insolvencies recorded in certain markets, such as the US and the UK, has remained consistently low in recent years. With likely delays to further interest rate rises in the US, and possibly even cuts, the status quo looks set for the foreseeable future. Though the number of corporate insolvencies has remained relatively low, a number of notable companies have entered bankruptcy over the last 12 months, particularly in the retail sector. In the US, Payless ShoeSource, Diesel USA, Sears, Fullbeauty Brands and David’s Bridal have filed for Chapter 11. In the UK, Debenhams, Patisserie Valerie, LK Bennett and many others also entered administration.

UNITED STATES

Van C. Durrer II

Skadden, Arps, Slate, Meagher & Flom LLP

“The first days of 2019 definitely saw more insolvency activity in the US, although we are hearing anecdotally that the second quarter of 2019 has been slower. President Trump’s recent pressure on the Federal Reserve to delay further rate increases or even to cut interest rates may afford troubled companies with a postponement of their day of reckoning. Nonetheless, the ongoing China-US tariff dispute should cause enough disruption in capital markets and elsewhere to force more restructuring activity. The upcoming escalation of the trade war is scheduled to occur in June 2019, so we will see what impacts it may have during the second half of 2019, unless peace breaks out.”

ARGENTINA

Fernando Hernández

Marval, O’Farrell & Mairal

“Due to several factors, including the raising of interest rates by the US Federal Reserve, the inability of the Argentine government to perform structural changes and reduce the fiscal deficit, the increase of the Argentine government’s inflation goals for 2018 and a historical drought that affected crop production, during 2018 the Argentine peso depreciated 103.83 percent against the US dollar. As a consequence, inflation for 2018 increased 47.6 percent. In an attempt to control the US dollar exchange rate and inflation, the federal government and the Argentine Central Bank adopted a series of measures, including raising interest rates in pesos to more than 70 percent and reducing the fiscal deficit.”

UNITED KINGDOM

David Bryan

BM&T European Restructuring Solutions

“In absolute terms, the numbers of corporate insolvencies have remained very low, as they have for many years. However, the latest government figures for Q1 2019 do show a significant uptick, with the number of insolvencies up 6.3 percent over Q4 2018. A recent ‘Red Flag Alert’ report showed a 16 percent increase in businesses in significant financial distress. Insolvency statistics are at their highest numbers for five years, but those last five years have been at very low levels, by historic standards. Businesses are facing a raft of headwinds with increases to the minimum wage, increases to pension contributions and increased business rates.”

IRELAND

Frank Flanagan

Mason Hayes & Curran

“A key driver in the Irish market continues to be the sale of distressed debt by banks under pressure to reduce their non-performing exposures (NPEs). The secondary lenders acquiring this debt tend to move quickly to resolve the portfolios they have acquired. However, we are seeing a significant decrease in the appointment of receivers to corporates. This is indicative of an increase in consensual settlements, generally involving refinancing. Numbers of creditors’ voluntary liquidations have remained fairly constant, but the market perception is that many of these arise from directors tidying up ‘zombie’ companies that have been through a receivership, to enable them to return to business as usual.”

SPAIN

Andrea Perelló

Cuatrecasas

“According to the data published by the General Council of Judiciary, the number of corporate bankruptcies in Spain remained almost the same in 2018 as in the previous year. There were 4131 bankruptcy proceedings in 2018 and 4095 in 2017. The autonomous community in Catalonia saw a major increase in the number of corporate bankruptcies last year, up from 747 cases in 2017 to 970 in 2018. In Madrid, the number of bankruptcy proceedings has remained largely unchanged. In terms of sales volume, the increase in bankruptcy petitions came from those companies with a sales volume lower than €1m.”

SWITZERLAND

Daniel Hayek

Prager Dreifuss Ltd

“The economic situation in Switzerland is generally favourable and there have been very few sizeable bankruptcies in recent years. However, bankruptcies of small- and medium-sized enterprises reached an all-time high in 2018. In October 2018, 521 companies had to file for bankruptcy in Switzerland, a year-on-year increase of 10 percent on October 2017. While there was a general increase in insolvencies for smaller businesses in Switzerland, certain regions recorded a substantially high amount of bankruptcies compared to previous years. The cantons of Uri and Glarus showed the highest increase in bankruptcies in 2018, with 26.1 percent and 31 percent, respectively.”

AUSTRIA

Thomas Trettnak

Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

“In 2018, the number of businesses filing for insolvency in Austria decreased slightly – there were 4980 applications for insolvency proceedings, down 1.9 percent on 2017. In total, insolvency proceedings were opened against 2985 companies and 1995 such proceedings were dismissed due to a lack of assets to cover costs. With fewer than 5000 insolvent companies in 2018, statistics show that this is the lowest number in the past 20 years. However, the slight decrease in the number of companies filing for insolvency proceedings has been relativised by the increased amount of liabilities and the number of employees affected.”

ROMANIA

Catalin Nichifor

BM&T European Restructuring Solutions

“I believe we need to totally separate restructuring and insolvencies, especially as locally, no more than 4 percent of insolvent companies are finalising a successful reorganisation. I am of the opinion that once a company files for insolvency, it will most probably end up in bankruptcy, destroying value for creditors, shareholders, employees and the community. In Romania, more than 8000 companies filed for insolvency in 2018, which was in line with the previous few years, but what is interesting is that bigger companies are becoming insolvent, producing ever more losses. Looking ahead, the volume of distressed companies and insolvencies is expected to grow.”

INDIA

Nikhil Shah

Alvarez & Marsal

“In 2016, India legislated a unified insolvency resolution framework, the Insolvency & Bankruptcy Code (IBC). This was put into place against the backdrop of a decade of increasingly stressed assets. The new law has helped fast track the resolution of the insolvencies of several large stressed assets over the last 12-18 months, leading to a recovery of around $10bn, a 43 percent recovery for financial creditors. The government and bankruptcy regulator are proactively strengthening the law and building capacity to accelerate the resolution of many bankruptcies and bring more certainty as the law matures.”

AUSTRALIA

Brett Lord

EY

“Formal insolvency appointments have continued to decline during the year ended 30 June 2018, with a 3.5 percent reduction compared to the prior corresponding period. This also represents a 28 percent decline from peak formal insolvency appointments which occurred during the year ended 30 June 2012. Worth noting is the change in the types of appointments generally occurring. It is no great surprise that the number of receiverships is down – 14.5 percent of total appointments in 2010 to 6.2 percent in 2018. However, what is interesting to note is the almost corresponding increase in liquidation appointments, up to 78.2 percent in 2018 from 70.9 percent in 2010, confirming that secured creditors are significantly less likely to intervene in a company-led insolvency appointment.”

CONTRIBUTORS

Alvarez & Marsal

BM&T European Restructuring Solutions

Cerha Hempel Spiegelfeld Hlawati Rechtsanwälte GmbH

Cuatrecasas

EY

Marval, O’Farrell & Mairal

Mason Hayes & Curran

Prager Dreifuss Ltd

Skadden, Arps, Slate, Meagher & Flom LLP