Recent economic challenges have triggered significant developments for household name companies in 2023.
Insolvency and Asset Recovery partners Alex Jay and Tim Symes respond to news stories on serious distress felt by some of these companies, as well as slower-burn effects of Covid which are now coming home to roost.
Restructuring of Cineworld
The world’s second largest cinema chain has battled a perilous situation since the onset of the Covid-19 lockdowns, and announced the loss of 45,000 jobs in November 2020. In the latest blow for Cineworld shareholders, the London-listed chain announced a reorganisation plan supported by lenders that “does not provide for any recovery for holders of Cineworld’s existing equity interests”.
Alex Jay comments: “Shareholders typically lose out in an insolvent restructure, but they will still not be happy with this development. They will look at the terms of the re-organisation very closely and we can expect the affected parties to jockey for position.”
While the company’s heads have declared that Cineworld wants to exit bankruptcy protection as soon as possible, official court documents suggest it may not be possible to generate the sufficient cashflow to remain in business long enough to emerge from the other side of Chapter 11 bankruptcy protection.
Alex says: “Post-Covid lifestyle shifts and poor global economic conditions are a double whammy for many businesses, and cinema is at the forefront of that. Cineworld is apparently banking on improved cashflow to trade out of Chapter 11, but it is hard to see why consumer viewing habits are going to improve materially between now and the end of Chapter 11 protection. At best this seems like something of a gamble.”
Threat of administration for Royal Mail if strikes continue
Long-running industrial disputes between bosses at Royal Mail and postal workers could lead to considerable job losses. The postal service has already said strikes would threaten job security of workers and has allegedly raised the threat of calling in administrators.
Tim spoke to This is Money about the strikes, explaining that a ‘no deal’ situation could have “potentially catastrophic consequences. Once Royal Mail goes into administration there will be an immediate need to cut costs, and so significant amounts of jobs are at risk.”
Tim adds: “Putting Royal Mail into administration would mean using – for the very first time -the legislation made when it was privatised just over a decade ago, especially for such a situation. Whether or not it enters administration, the big question is whether the government will decide to alleviate Royal Mail from its loss-making universal service obligation in order to help it back on the road to viability.”
Regulator criticises Credit Suisse for role in Greensill scandal
The Swiss Financial Market Supervisory Authority (Finma) has ruled that Credit Suisse breached Swiss law during its relationship with lender Greensill Capital. Finma concluded that the bank breached its supervisory duty and has ordered it to take further steps to overhaul its governance structures.
Alex comments: “Investors who still stand to lose huge sums from the Greensill collapse – $2.6 billion as it stands – will be very interested in this development. This is a formal criticism of Credit Suisse’s role, and it may have further ramifications for the bank particularly if there is a shortfall on recoveries.”
Flexible working prompts office closures
The shift from offices to a remote or hybrid setup has revolutionised working practices in countless businesses, leading to a steady trickle of companies announcing changes to their office space setup. In one example, Sainsbury’s announced it would completely shut down its Milton Keynes base, where only 11% of the space was being used regularly by workers.
Tim comments: “The supermarket’s closure of one office in Milton Keynes may seem like a ‘slow news day’ story, but it represents a serious symptom of ‘long Covid’ for the economy that we are seeing repeated across the country. While businesses may be saving office space, commercial landlords are left with too much of it, raising serious questions about how to manage and repurpose an emerging surfeit of office-use real estate.”
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