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Fragmented legal regime complicates post-COVID restructuring
A post-pandemic rise in restructuring and insolvencies in Asia Pacific could be complicated by the region’s fragmented restructuring and insolvency landscape.
Tony Zhang
In the third edition of its Guide to Restructuring, Turnaround and Insolvency in Asia Pacific, Herbert Smith Freehills analysed how organisations with interests in the region can best navigate the region’s restructuring and insolvency laws in a particularly challenging year.
“Government relief and stimulus packages gave businesses and consumers breathing space during the worst of the pandemic,” Mr Apáthy said.
“Many of these measures will disappear in the coming months and that will add pressure on consumers, businesses and their stakeholders, including lenders.”
Against a backdrop of the COVID-19 pandemic and the resulting economic downturn, the report revealed that companies and lenders are responding to a new and challenging business environment.
“The challenges associated with this new environment are further exacerbated as the influencing factors change in nature and intensity,” the report stated.
“While Governments in many jurisdictions have attempted to give company directors, businesses and consumers some breathing space during the worst of the pandemic with the implementation of relief packages and legislative changes, a number of these measures are to be wound back or end entirely.
“The removal of these types of support will add further pressures to many businesses and their stakeholders including lenders.”
Mr Apáthy said the sectors that are likely to see the most restructuring activity are those dependent on consumer spending, such as retail, travel, entertainment and hospitality.
“We expect this rollback to increase restructurings and insolvencies across the region as economies slow and consumer spending drops further,” he said.
“To add to the complexity for businesses operating across the region, there is little coordination of insolvency and restructuring processes in Asia Pacific, compared to Europe or North America.”
Focusing on Australia, Mr Apáthy stated Australia’s RTI environment is creditor-friendly, with a sophisticated restructuring environment that is well established in insolvency procedures.
“Recently, the Australian government has demonstrated an appetite for law reform in the restructuring, turnaround and insolvency space,” the report noted.
“The key changes to look forward to are changes to be made on the temporary insolvency law reforms enacted that expire at the end of 2020.”
An increase in insolvencies is expected once insolvent trading relief ends on 31 December this year, after which small businesses with liabilities of up to $1 million will be subject to a new process being introduced by the government.
Previously, Clayton Utz lawyers had told Lawyers Weekly that the current economic environment presents an opportunity for Australian businesses to transform their operations through strategic restructures and emerge even stronger, according to a new report.
