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Restructuring and Insolvency - What to expect in 2022?

We have given some thought to what we can expect for 2022. Our top 12 predictions are listed below. We would love to hear your thoughts. Do you agree or are we wide of the mark?

1. A wave but not a tsunami

    The return of remedies to creditors in general and landlords in particular, will lead to an increase in corporate failures and re-organisations. However, the compulsory arbitration scheme for landlords (What next for recovery of rent?) and prevailing business optimism will mean that the increase will, reflecting the build-up, be slightly above, 2019 levels rather than a deluge of new cases.

    2. Troubled sectors emerge from suspended animation

      In the years before 2019, a number of sectors were experiencing a structural decline. Most prominently affected were bricks and mortar retailers and casual dining chains. That decline will have been accelerated by consumers’ preference for home deliveries, although the shape of any rescues may now be altered by the unexpected boost for local high streets caused by the move to home working.

      3. Sectors suffering from long Covid

        In addition to the pre-pandemic problem areas, many travel and hospitality business look like they will have a slow recovery and may be unable to finance continued periods of slow business. Gym operators may also face difficulty after consumer shift to home exercise and online exercise tuition.

        4. Hair triggered mood changes

          While we hope for a general and steady recovery of the economy, there are lots of potential problems, which if they materialise, could quickly change business sentiment - supply chain problems, inflation, a resurgence of populist political leaders in major counties, to name a few. Western governments have not spent their way out of a recession like this before (or at least for a very long time) and many investors are watching closely how it unwinds - poised to react before others do.

          5. Deflating the tech bubble

            One of the feature of the recent investment boom is a fixation with all matters tech. Many investors will have funded businesses in the hope of selling them on for more but with no clear path to profits. Many rely on new ideas which are untested. This risks some tech sector’s falling out of favour quickly. Many will have high cash burns and if that means that they fail to secure the next funding round they will quickly need an insolvency or restructuring solution.

            6. Increasing regulatory burden

              The combination of more muscular central governments that voters have become used to, newly emerging tech business sectors and refocussed priorities is likely to lead to an increase in regulation. In the fintech sector crypto-currencies, NFTs and their ilk are likely to meet new regulations, and more rules to help ESG and I & D targets can be expected. While all of this may be socially laudable, it has a cost - which may push some business over the edge.

              7. And other increased business costs

                Even if they do not lead to a hair triggered mood change, tight labour markets are likely to lead to wage inflation; supply chain blockages could lead to business and consumer price inflation; and for exporters to, or importers from Euro land, further tweaks to the Brexit deal could complicate life. When twinned with any additional regulation, many may feel squeezed.

                8. Pain for retail landlords

                  Many shopping centre operators are already feeling degrees of stress from failed retailers. With the return of landlords remedies from March, and the expected increase in insolvency or restructuring of retailers, many retail landlords may need help. Solutions may not be easy and many shopping centres may need to be demolished or re-purposed. Seeing this on the horizon, their lenders may become less patient.

                  9. Office landlords start to feel the heat

                    While office use can be expected to pick up, it seems unlikely that most city centre offices will return to pre-pandemic occupancy levels. Many office landlords have, so far, been insulated from this by tenants paying current rents. But office tenants seem unlikely to renew their leases for the same amount of space per head. As leases fall for renewal over coming years, landlords will be left with empty units. Tenants may move upmarket leaving aging or out of the way offices empty once current leases expire.

                    10. Office tenant suppliers

                      If office use declines, it’s not just the office landlords who will face pressure. Cleaners, security and building services, and the sandwich shops, convenience shops and bars who depend on office users, will also feel the pinch. For businesses who are heavily weighted to this area, problems may loom.

                      11. Fraud uncovered

                      Easy government funding, hurried public sector contractor appointments and extended periods of protection from creditor remedies, are likely to have shielded actions of dishonest directors. The less sophisticated directors may come to regret relying on the patchy protection offered by government against wrongful trading- but not other directors’ duties.

                      12. New lenders tested

                        SMEs have come to rely on a range of small and specialist lenders as traditional clearing banks showed increasing indifference to funding them. And as with the late noughties down turn, a buoyant private equity sector will be hungry for portfolios of larger lenders loans or funding to businesses from the Government’s British Business Bank. The new lenders and private equity debt buyers will be free of political pressures on the clearers adding a further degree of unpredictability into the mix.

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