Corporate Insolvency Law Perspectives and Principles

Eight years have elapsed since the previous edition of this work. During that period a number of landmark events have occurred.

The global financial crisis has impacted on the commercial environment and has produced some spectacular corporate insolvencies across the globe. Lehman Brothers led the roll-call of casualties in September 2008 when it entered US Chapter 11 bankruptcy and triggered a tidal wave of insolvencies in its local subsidiaries across the globe. A dramatic increase in UK corporate insolvencies might have been expected in the wake of that global economic downturn. That has not happened. The statistics indicate a fall by a third between 2008 and 2015, with corporate insolvencies in England and Wales declining steadily from 21,811 to 14,600.

What explains this lack of business failures, particularly when the number of registered companies continues to rise? Firstly, many of the weaker businesses may have gone to the wall just prior to the 2008 crash. Secondly, many distressed businesses may have been saved through creative use of informal rescue schemes, cost-cutting measures and mergers. Many other firms have simply downsized rather than collapsed. It is also clear that secured creditors (particularly banks) have, on occasions, been reluctant to foreclose on struggling debtor clients because their assets were not worth realising during depressed economic times. The rise of the ‘zombie’ company, drip-fed with small amounts of funding but barely surviving as a viable business entity, has been noted. That dynamic might change if the economy picks up significantly. There are also hints that some small companies are being ‘abandoned’ by their owners without undertaking formal insolvency procedures – but there is no hard data on this phenomenon.

The overall number of corporate insolvencies may have declined steadily since 2008, but there have been significant variations in resort to different procedures. Thus, there were 4,822 administrations embarked upon in 2008, but this figure had fallen to 1,406 in 2015, which is a drop far more dramatic than that experienced with insolvencies. There were 587 Company Voluntary Arrangements (CVAs) in 2008, but this number also fell in 2015 (to 357). The decline has been most marked for receiverships, which reduced from 867 in 2008 to a position, at the time of writing, in which there are only single-figure incidences. That particular decline was predictable as the effect of the Enterprise Act 2002 reforms began to kick in.