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Insolvencies to rise in face of supply-chain disruption

Ogier lawyers have pointed out that Q2 increases in corporate insolvencies and voluntary liquidations in England and Wales, because of pandemic-support withdrawal, soaring energy and fuel costs, and weakening demand, are now reflected in instructions from distressed companies to their global business. 

The firm has seen a flow of traditional insolvency-side mandates and a requirement for pre-enforcement insolvency and restructuring advice, signalling that parties may be “getting their ducks in a row”. 

The liquidation rate in England and Wales is four times greater than in Ireland.

Market expectation is that insolvency rates will trend upwards for the rest of 2022, with substantial increases in 2023.

In Ireland, the level of corporate insolvencies remained artificially low for the first six months of 2022 but this will change significantly as pandemic subsidies are withdrawn.

Shortages

Firms are facing labour shortages, high inflation, and low consumer spending. 

Other jurisdictions are seeing much contingency planning as interest rates rise.

Christian Burns-Di Lauro (Ogier restructuring and corporate recovery partner) said: "Credit institutions will undoubtedly play their part in the financial markets by working with businesses to amend existing credit facilities to help stabilise the uncertainly of potential insolvent restructuring scenarios, to extend their life expectancy during this unknown period of uncertainty.

"However, with China – one of the world's largest net-exporters – pursuing a zero-COVID policy, and with soaring energy prices exacerbated by Russia, the longer-term global supply-chain disruption may well lead to further insolvent casualties that non-contentious restructuring may not be able to save."

Liquidity challenges

In the Cayman Islands, restructuring work post-COVID is flowing from the Asian markets, but liquidity challenges are visible elsewhere given capital constraints.

Investors and investment managers are showing less tolerance for liquidity excuses, but are taking strategic steps rather than aggressive action, the Ogier lawyers believe.

In Guernsey, a wave of insolvency work is expected, although administration applications are up, and, in other jurisdictions, non-contentious restructuring work has been more prevalent.