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The COVID-19 pandemic has had a significant impact on the bankruptcy and restructuring space. Though virtually every industry has been affected by the crisis, with businesses shuttered amid lockdowns and social distancing measures, the glut of insolvencies that one might expect has not materialised, thanks largely to government support.

UNITED STATES

Huron

“Leading into the first quarter of 2020, the US economy was robust and many borrowers had a strong balance sheet. As the pandemic began, most companies quickly reduced costs to conserve cash and there was significant activity to amend credit agreements to allow borrowers more flexibility in relation to financial covenants suspension and replacement. In fact, we found most lenders, both traditional and non-traditional, were willing to underwrite debt modifications, waivers and amendments to help companies avoid financial distress and defaults.”

UNITED KINGDOM

RPC

“Despite large parts of the UK economy effectively being closed during the COVID-19 pandemic, the number of corporate insolvencies in the UK over the past 12 to 18 months has actually fallen. This is because the UK government has put in place a combination of financial support and legal protective measures that are specifically intended to avoid a wave of corporate insolvencies. Those measures include government-backed loans, a prohibition on creditor debt enforcement via insolvency proceedings and a relaxation of the directors’ duties regime.”

IRELAND

Dillon Eustace

“According to Deloitte, corporate insolvencies in Q1 2020 were down 18 percent from the same period in 2019. Then of course, the COVID-19 pandemic struck. Notwithstanding that fact, over the course of 2020 there was only a marginal increase in corporate insolvencies in Ireland of just 1 percent from 2019. There are a number of factors that gave rise to this, specifically government support to businesses and employees, support from lenders and forbearance from creditors. The latest insolvency statistics show that there was a 30 percent decrease in the number of corporate insolvencies in Q1 2021 from the same quarter in 2020.”

BELGIUM

Eight Advisory

“Belgium saw a record low number of bankruptcy cases following the numerous measures taken by the government to keep the economy going through the COVID-19 crisis. These measures included temporary unemployment, COVID-19 loan guarantees, loan extensions and extensions to VAT and social security payments. This support has created a situation whereby underlying failing businesses, which normally would have already failed, are able to continue as a going concern. This situation should resolve itself once government support ends and the true underlying damage to the economy becomes apparent.”

NETHERLANDS

Eight Advisory

“In the Netherlands we have seen a relatively low number of bankruptcy cases. Although the impact on businesses in a wide range of sectors has been fierce, the Dutch government’s support measures have reduced the number of insolvencies. However, recent insolvency figures do not tell the full story: unfortunately, many companies, entrepreneurs and their employees face huge financial difficulties and concerns. To date, the Dutch government has been able to provide companies with all kinds of support to overcome the crisis. One measure has been tax postponement – we estimate that around €20bn has been postponed since Q1 2020.”

GERMANY

PwC Germany

“In the decade following the global financial crisis, Germany experienced a period of continuous growth and, consequently, we have seen a steady decline in the number of insolvencies since 2010. Then, interestingly, with COVID-19 turning things upside down since early 2020, we have seen three effects. Firstly, certain industries not only have been, but continue to be, hit particularly hard by the ongoing lockdowns, notably the travel and brick-and-mortar retail sectors, and are struggling to survive in the current climate. Secondly, other industries have experienced a much faster recovery and already seem to have entered the ‘new normal’.”

SWITZERLAND

Prager Dreifuss Ltd

“Until the outbreak of COVID-19, the economic situation in Switzerland was generally favourable and there were very few sizeable bankruptcies. However, because of the severe impacts of COVID-19 on businesses, a sharp increase in insolvencies was expected. Yet, while in 2020 the Swiss gross domestic product (GDP) saw its largest decline since 1975, there were only 12,912 bankruptcy proceedings opened, a decrease of 7.2 percent compared to 2019. The financial measures taken by the Swiss Federal Council to support businesses suffering from the effects of COVID-19 seem to have successfully prevented a sharp increase in bankruptcies, at least for the time being.”

SPAIN

Boston Consulting Group

“Since the start of the pandemic, and as in many other jurisdictions, the Spanish government reacted, supporting businesses in three ways. Firstly, it unlocked liquidity through public bank guarantees granted by the Instituto de Crédito Oficial. Secondly, it waived directors’ responsibility for not starting a concurso de acreedores, the Spanish insolvency proceeding. Finally, it permitted temporary workforce reductions. Due to these actions, the number of business failures in Spain has been much lower than what anybody would have predicted. According to the Spanish National Institute of Statistics, the number of concursos de acreedores in Q4 2020 was 1383, roughly in line with Q4 2019’s 1389 cases.”

AUSTRALIA

Ankura

“Over the last 12-18 months there has been a significant reduction in corporate insolvencies, with appointments decreasing by an average of 48 percent for the rolling 12 months to March 2021. This decrease can largely be attributed to government support measures put in place during the COVID-19 pandemic, forbearance by stakeholders such as financiers and the Australian Taxation Office (ATO), and an abundance of liquidity in the market. During the pandemic, the federal and state governments provided a range of assistance measures to businesses including wage subsidies, such as the JobKeeper scheme, and a relaxation of insolvency laws to maintain business confidence.”

UNITED ARAB EMIRATES

Horizons & Co

“Federal Decree Law 9/2016 – the Bankruptcy Law – is the first comprehensive law in the United Arab Emirates (UAE) that addresses insolvency proceedings. Previously, bankruptcy proceedings were dealt with in the Commercial Transactions Law and the Penal Code. An important distinction, that is worth highlighting, must be made between bankruptcy and liquidation. Bankruptcy occurs when a company is in financial difficulty and cannot pay its debts when they fall due – for instance a company’s debts exceed its total assets. Liquidation, on the other hand, occurs when shareholders agree to liquidate the company, regardless of its financial standing.”

CONTRIBUTORS

Ankura

Boston Consulting Group

Dillon Eustace

Eight Advisory

Horizons & Co

Huron

Prager Dreifuss Ltd

PwC Germany

RPC