The latest insolvency statistics in the UK make for grim reading. Per the government’s official assessment, 1,964 corporate insolvencies took place in December 2022, 32% higher than in the same month in the previous year and 76% higher than the number registered three years previously pre-pandemic. With inflation and energy costs remaining high and government support rolling back, companies will be taking whatever steps they can to remain in business.
Credit Suisse sues Greensill lender for lost funds
The latest chapter in Greensill Bank’s administration saw Credit Suisse bring legal action to protect its clients from ensuing costs. Credit Suisse alleges that the administrator handling the German bank’s insolvency has breached an agreement to hand over proceeds from insurance claims to their funds, which is still trying to recoup about $2.6 billion after building up an exposure of $10 billion to Greensill in the years leading up to its collapse.
Alex Jay spoke to The Times about Credit Suisse’s decision to bring legal action. A login is required to read the full article.
“Fees in complicated insolvencies can range from the tens of millions to the hundreds of millions,” Alex said. “Greensill’s administration fees in the UK have reached £33 million and while Greensill Bank is a different operation it has billions in assets under management.
“The costs of the administration are likely to be significant. I could easily see them in the tens of millions and that figure may well go even higher. If the costs were a matter of a few hundred thousand and insurance proceeds were going to be many millions, one couldn’t imagine Credit Suisse would have bothered to issue a claim form.”
It is understood that the two sides have resolved some issues but that disagreements remain over Greensill’s right to expenses, the validity of the contract signed after its collapse and the jurisdiction of the legal case.
Alex said: “Insolvency law is complicated and it can typically override contractual positions from time to time to avoid people circumventing insolvency regimes, which are broadly designed to ensure fairness between creditors. You often see arguments arise about how money that arrives in the insolvent estate should be allocated.”
One Life Funeral Planning collapses
In November 2022, the Financial Conduct Authority rejected the funeral company’s application for authorisation and delivered a public warning on the state of the business. News broke at the beginning of 2023 that customers would lose out on a total of £11 million as One Life collapsed with a £20 million deficit.
Tim Symes comments: “Money held on trust for customers ought to be safeguarded by the company. It looks like something went seriously wrong here which the Administrators’ investigations will no doubt reveal. It is an aggravating factor that these customers were just trying to do right by their loved ones. If any failures were caused by the directors then they could be facing personal liability for the customers’ losses potentially running into the millions.”
Pre-pack deal proposed for Paperchase
Following speculation that leading high street stationary chain Paperchase was preparing to go into administration once more, the business announced it was in talk with potential buyers.
Tim comments: “The landlords of the shop units won’t be happy to be back here again. Having already taken haircuts on lease terms the first time around, they can expect to be faced with even harsher ‘take it or leave it’ changes in the leases. If they want the units to remain occupied in the immediate term then ‘take it’ might be the least worst option for them.”
Barclays and Manolete’s attempt to recover misappropriated Covid loans
One of the most pressing issues for the economy heading into 2023 is the recovery of misappropriated Covid-19 support distributed at the height of the pandemic. Barclays, which advanced £10.8 billion as the largest bank lender in the bounceback loan scheme, has announced it will partner with insolvency specialist Manolete Partners to recover misappropriated loans.
Alex says: “This is an excellent project if Manolete and Barclays can make this scheme return value for the taxpayer. The challenges will be around the cost of recovering thousands of relatively small £50,000 loans, so that the expense of recovery does not wipe out the return.”
Business interruption loan scheme repayments due in spring
In the midst of a precarious economic landscape, pub and restaurant owners have called for assistance with repayments on loans taken out under the government’s schemes. Many of these are due in the spring. While the smallest businesses will receive automatic forbearance from banks, larger companies will need to negotiate for more time.
Tim says: “This request by the hospitality trade for forbearance on its Covid loans is a tricky one. This won’t be the only sector that has businesses still struggling to recover, and plainly some hospitality businesses will have fared much better than others.
“Preferential treatment for this sector could lead to a charge by others for the same. On the other hand, not giving leeway to some of these businesses could cause them to quickly fail having a direct impact on the taxpayer by the banks calling on the government guarantee.”
The threat of reduced energy support for businesses
The government’s announcement that the maximum energy bills support for business will drop from £18 billion over six months to just £5.5 billion over 12 months has seemingly put many at the risk of collapse. Though inflation and gas prices are now falling, the costs of staying open may prove too difficult for many to bear.
Tim comments: “With many small businesses still overleveraged with Covid debt this move by government could be the death knell for many of them. For those that can survive, they may have to shrink and shelve growth plans, affecting growth in the economy as a whole and prolonging the downtown.”
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