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The coronavirus (COVID-19) pandemic has continued to have a dramatic effect on the bankruptcy and insolvency space over the last year. While many larger companies have survived the crisis so far, thanks in no small part to the various governmental assistance programmes which have been enacted since early 2020, many smaller organisations, particularly in the retail market, have suffered. As the effect of the pandemic begins to subside and governmental support ends, it is likely that more companies, particularly those that did not right-size their operations during the crisis, will fail, especially in light of ongoing challenges. Inflationary pressures, increasing interest rates and other geopolitical developments, most notably the Russian invasion of Ukraine, will squeeze consumers and thus businesses, particularly those in the retail, travel, hospitality and leisure industries.

UNITED STATES

Gavin/Solmonese LLC

“The coronavirus (COVID-19) pandemic and related conditions have driven distress in business throughout the US. Failures have been isolated to smaller, more retail-facing firms, particularly those with fewer than 50 employees. Larger firms largely survived with the benefit of federal government financial assistance programmes and lenient lenders. Smart firms took the opportunity to right-size operations, and many are making higher margins today on lower sales volumes. Smaller firms unable to adjust to changing circumstances or source financial lifelines have largely failed.”

MEXICO

Alvarez & Marsal

“Restructuring activity in Mexico can be divided into two categories: restructurings in industries negatively affected by the coronavirus (COVID-19) pandemic and restructurings primarily caused by a structural adjustment in an industry. The first category considers restructuring processes of businesses that suffered a liquidity crunch during the peak of the pandemic after demand for their products and services plummeted, including airlines, movie theatre chains and restaurants, among others. In these cases, despite having a sound business model, certain companies had to go through a financial restructuring process, either in- or out-of-court.”

COLOMBIA

Alvarez & Marsal

“By mid-2020, the Colombian government issued a series of temporary regulations in anticipation of high distress, bankruptcy and liquidation activity due to the coronavirus (COVID-19) pandemic. And, although there was a considerable increase in filings, it was lower than expected, partly because Colombia’s economy was not impacted as badly as expected and partly because the government and financial institutions’ (FIs’) aid to companies to protect employment and enterprise were effective. Statistically, growth in filings was not exponential. In 2017, there were 100 filings for restructuring; in 2019 they almost quadrupled.”

CAYMAN ISLANDS

Bedell Cristin

“Statistics in the Cayman Islands make for interesting reading. In 2021, winding up petitions arising from insolvency and restructuring situations, such as creditors’ petitions, voluntary liquidations and restructurings involving the appointment of joint provisional liquidators, made up the majority – around 82 percent – of the petitions presented. However, the numbers in question are modest, with only a total of 51 winding up petitions having been presented in the whole of 2021. Notably, the majority of the creditor petitions presented concerned either companies or funds whose primary business was conducted in Asia.”

UNITED KINGDOM

Shearman & Sterling LLP

“England is a sophisticated jurisdiction with a rescue culture. A balanced and considered approach to restructuring and insolvency has continued and been enhanced throughout the coronavirus (COVID-19) pandemic with the government both implementing temporary legal measures to support businesses and accelerating some permanent changes to the insolvency and restructuring landscape. The temporary COVID-19-related protections for directors and businesses have now ended and, in combination with the cessation of various financial and other government-funded support initiatives, we have seen a moderate rise in insolvency filings, particularly among small firms, albeit from historic lows in 2021, relative to the last decade or so.”

GERMANY

PwC Germany

“We are entering year three of the coronavirus (COVID-19) pandemic with the German economy having been on a steady growth path before the pandemic hit in early 2020. The number of insolvencies was continuously declining, and liquidity was abundantly available in the market. And interestingly, that has not really changed through the COVID-19 crisis. In fact, the number of insolvencies declined even further during the pandemic, with 2020 marking an all-time low in insolvency cases since the early 2000s. However, financial robustness and the rapid adaptation of businesses to the new reality of the pandemic were not or only partly the explanation for this phenomenon.”

SWITZERLAND

Prager Dreifuss Ltd

“The coronavirus (COVID-19) pandemic has had severe impacts on businesses. In 2020, Switzerland's domestic product (GDP) saw its largest decline since 1975. However, there were only 12,912 bankruptcy proceedings opened in 2020, a decrease of 7.2 percent compared to 2019. A large and general increase in bankruptcies also did not happen in 2021, as had been expected by many. 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 in the short term.”

SPAIN

Boston Consulting Group

“Despite the moratorium applied to insolvency filings at the start of the coronavirus (COVID-19) pandemic, the number of insolvency cases in Spain has been increasing consistently since 2020. The hospitality, construction, distribution and real estate sectors are the industries which have been impacted the most, though in the case of the hospitality sector, the number of insolvencies in the industry has started to decline following the removal of COVID-19 restrictions. There is still great uncertainty, however.”

ITALY

CMS

“The coronavirus (COVID-19) pandemic has had a significant impact on the Italian economy, with gross domestic product (GDP) falling by 8.9 percent in 2020. However, compared to 2019, there were fewer declarations of bankruptcy and, more generally, fewer exits from the market in 2020, a trend that has continued in 2021. Analysis by the Bank of Italy in its 24 January 2022 report – ‘The impact of COVID-19 on bankruptcies and market exits of Italian companies’ – found the following. First, the number of bankruptcies in 2020 was down 33 percent compared to 2019.”

GREECE

PwC Greece

“The extensive government support schemes granted to companies affected by the coronavirus (COVID-19) pandemic, as well as a credit moratoria, contributed to the relatively low level of insolvency and restructuring activity seen over the last 18 months. In addition, the entry into force of the new bankruptcy framework in Greece coincided with the outbreak of the COVID-19 crisis, therefore it is not yet in full use. Data from the last two years suggests that many parties opted to postpone or re-examine potential restructuring transactions offering breathing space to companies affected by the pandemic.”

SAUDI ARABIA

EKP

“A new Bankruptcy Law was issued in early 2018 with the intention of reform. The law was intended to distribute assets to creditors in a more efficient manner and modernise the Saudi Arabian system, in line with global standards, to build trust, increase access to finance and drive economic growth. Prior to the new law, bankruptcy filing proceedings were regulated under 34 different articles in the Commercial Court Law, which was issued in 1931. Clearly outdated, the Ministry of Justice dedicated substantial time and resources to developing the new Bankruptcy Law and ensuring it was fit for purpose.”

UNITED ARAB EMIRATES

Horizons & Co

“The last 18 months have seen an upsurge of bankruptcy filings with the onshore United Arab Emirates (UAE) courts. The Bankruptcy Law of 2016 was a seldom-used piece of legislation until 2021. As such, bankruptcy and insolvency law in general is a new thing in the onshore UAE legal regime. Since then, however, many high-profile businesses have encountered severe financial difficulties resulting in bankruptcy filings, both creditor and debtor based. Many of them have an element of fraud involved, others are due to the negative economic effects of the coronavirus (COVID-19) pandemic.”

CONTRIBUTORS

Alvarez & Marsal

Bedell Cristin

Boston Consulting Group

CMS

EKP

Gavin/Solmonese LLC

Horizons & Co

Prager Dreifuss Ltd

PwC Germany

PwC Greece

Shearman & Sterling LLP