European governments are ripping up their insolvency laws to stem the tide of companies set to collapse over the Covid-19 pandemic, but for many businesses it may be too little too late.
Still, implementing the new rules -- and actually
“This is Darwinist survival of the fittest compressed into six months,” John Colley, Associate Dean at Warwick Business School, said. “Business will not be the same again.”
Companies are already going under from the impact of the shutdown. In the U.K., restaurant chain
While the new legislation ought to help some viable businesses forced into insolvency proceedings due to the current disruption, it won’t save every company, according to
“For some companies the U.K. reforms will come in too late as they could take months to come into law,” said Philip Hertz, global head of restructuring and insolvency at Clifford Chance in London. “There will still be a wave of restructurings and insolvencies.”
In Italy, one of the nations worst hit by the virus, law firms are working on ways to ease the burden on borrowers. They’re drawing up a proposal to waive companies’ requirement to file for bankruptcy when assets fall below a certain threshold and capital can’t be raised to offset the shortfall, according to
Prime Minister Giuseppe Conte is also working on a
Spain has effectively prohibited companies from filing for forced insolvency until after the state of emergency is over. Restructuring practitioners and bankers are bracing for a
“Shareholders will need to decide whether to inject new equity or other forms of capital or else engage with lenders,” said
Like Spain, France has made it impossible for companies to be forced to go into insolvency, but managers can still decide to start proceedings to get court protection and trigger payments for their employees.
Meanwhile, Germany has eased insolvency rules partly by exempting virus-hit companies from the standard rules until September, with the option to extend to March 2021.
Still, companies are warning they will have to start proceedings unless they receive urgent
“Many companies will just not have enough money,” said Tillman Peeters, managing partner at Frankfurt-based financial advisory firm Falkensteg. “What’s the point of changing bankruptcy rules if there is physically no cash left? The government still has to fix that.”
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