Corporate bankruptcy and insolvency matters have been on the rise since September 2008 according to a report on the impact of the financial crisis on Hong Kong listed companies released by Ferrier Hodgson last week. This should be good news for legal insolvency practices working in Hong Kong. Insolvency, corporate bankruptcy and restructuring are, of course, some of the key sources of work for law firms during a downturn but is the expected flood of work now inundating firms?
“It’s quiet in Hong Kong at the moment,” said Michael Barker, the partner recruited by Herbert Smith earlier this year from Appleby to build its insolvency practice in the region. “It is quiet across the rest of Asia as well … whereas six to eight months ago it was so bad that were asking ourselves how we could bring in the resources to deal with the rise in work.”
The Ferrier Hodgson report also indicates that the banking sector has performed relatively well compared with financial and investment companies. “There are reasons for this – as business banks are usually boring but safe, while financial and investment companies should be boring and sometimes aren’t safe. On the whole, given the decline in profitability and likely inability of companies to grow revenues as easily as in the past, we don’t expect that the economy can fully recover within a short period of time,” said Nick Gronow, executive director of Ferrier Hodgson.
Many factors influence the flow of insolvency work in Asia, but the ‘boring but safe’ approach of the banks has kept defaults in check. “Banks are reporting few defaults in lending and have generally been very cautious in their lending,” Barker said. “There are a few small to medium enterprises that are keeping smaller firms busy with their problems, but on the whole we haven’t seen any major corporate collapses or restructurings in Asia yet.”
Banks are also adopting a much more cautious approach to loan defaults and are generally viewing insolvency as a last resort. However, it could be that this is the calm before the storm.
For further findings on the insolvency sector in Asia, see the News Analysis section of the November (9.11) issue of ALB.
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