Friday 5 February 2021 9:00 am Fladgate Talk

Corporate collapse and pre-pack wave

What is city talk? Info Info. Latest
Jeremy Whiteson is a partner in the corporate department at Fladgate. He specialises in corporate transactions (start-ups, fund raisings and mergers and acquisitions (M&A)) and corporate recovery work.

The pandemic has wrought massive damage to many business. A dramatic drop in trading has left many firms unable to pay their debts. 

The normal assumption is that this would trigger a wave of corporate failures.  However, the official figures to Q3 2020 is that the number of corporate insolvencies is lower than the previous year. 

The reason, in our view is that the wave of corporate failures has been held off by a series of government protections- most notably restrictions on winding up petitions and business evictions and the furlough scheme. 

But these schemes must end at some point- which they are currently scheduled to do in the spring. That will leave businesses with debts that they cannot meet.  

Unfortunately, that suggests to us that the corporate cliff if approaching, and getting higher. 

This ties in with results of our Restart Capital survey run in the autumn of 2020 which found that 35% of SMEs expected to be out of business within 12 months. 

We expect pre-packs are expected to be the insolvency procedure of choice for trading businesses. Debts are likely to be too high to reach compromises with creditors in a company voluntary arrangement. Use of the procedure may be accelerated in the first half of the year before the planned new regulation of pre-packs is introduced which will impose additional costs (expected May 2021).

Property related businesses may be more likely to use receiverships. 

Both receiverships and pre-packs will result in quick transactions to sell distressed assets. This will trigger a need for new funding but an opportunity for businesses to be restructured, shorn of unproductive elements but still carry on.

With many years of experience in this field, including acting in a number of high-profile corporate collapses, Fladgate is well equipped to advise insolvency practitioners, banks and other lending institutions, stakeholders, troubled companies, directors and individuals on a variety of corporate insolvency-related issues. We are also experienced in current deal structure in the distressed investment and debt restructuring markets. Our insolvency and restructuring team, comprising experienced lawyers with skills in contentious and non-contentious law, has a reputation for providing practical solutions to business-critical challenges.