Small global recession – few corporates die
January 2013 | MARKET OUTLOOK 2013
Financier Worldwide Magazine
As we move further into the fifth year of the global recession, few would have predicted the crisis would last so long and even fewer that insolvency practitioners around the world would still be complaining about poor activity levels. 2012 ends with UK corporate insolvencies at record low levels and still falling, a picture mirrored in numerous other jurisdictions, developed or otherwise.
Pundits have suggested many reasons for this unparalleled phenomenon: sustained low interest rates, unexpected flexibility in labour markets and unwillingness by bankers in the face of capital adequacy pressures to trigger losses and further public opprobrium by pushing borrowers over the edge. The most probable explanation is the endemic lack of growth, which has traditionally culled weakened companies as they fail to replace their exhausted working capital resources fast enough.
The result has been the creation of the much-discussed army of the walking corporate dead, zombie companies unable to service their debt and supported by little more than the apathy and fear of their major stakeholders. The UK insolvency trade association R3 estimates that there are now 160,000 such poor unfortunates in Britain, distorting markets and dragging down the profitability of their healthier rivals.
Will this change in 2013? Will growth, however pallid, drive up insolvencies? Could the endless eurozone crisis push more companies into commercial oblivion? Will dysfunctional US politicians bicker their way blindly over the financial cliff? Could the slowing BRIC economies be the last straw for the world economy, pushing us from grinding recession into outright depression? So many questions, so few answers and so little sense that anyone has the vision to find a forward gear and drive us all away into a happier business future.
As with most aspects of life, reality lies somewhere between the extremes of doom and triumph. The most likely scenario is that true recovery will start when major corporates grow tired of caution and release their huge cash piles and unused borrowing capacity for investment. Or when governments accelerate infrastructure and other capital spending. As this trickles down the business food chain, it will prompt the real engines of growth – smaller family-owned enterprises – to take on more staff. The process will be slow and may not start for quite a while yet, certainly not until later in 2013 or even 2014.
What will it mean for insolvency practitioners and restructuring professionals? More work for sure, but no tsunami of failures. More fees as well, but no bonanza. Professional resources will be tested: the business rescue profession has shrunk considerably over the past five years. Some of the brightest and best have retired or moved into other specialisms.
Recovery will be patchy, both geographically and between industry sectors. Cross-border regimes, dealt a blow by the recent Rubin decision in the UK and still battling to deal adequately with the failure of multinational groups, will struggle to adapt to changing demands, as will court systems around the world.
So no blue skies in 2013, just a lightening of the grey and a lessening of the economic headwinds. Always assuming, of course, that our politicians don’t contrive to turn minor commercial gains into a major financial catastrophe with their continuing ineptitude.
Head of External Affairs
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