The predicted surge of insolvency work after the financial crisis never materialised in Asia, but disappointed insolvency lawyers in the region may have reason to remain hopeful.

“Accountants and insolvency practitioners got very excited when the GFC was in full swing,” Wong Partnership partner Sean Yu Chou said. “There were hopes of company collapses which provide lucrative liquidation and administration work.”

However, to the disappointment of many, banks took a more tolerant approach to debt. “There were not many instances where creditors pushed the button and went ahead with fully enforcing their rights,” Chou said. “Many have endeavoured to achieve consensual restructuring.” Bank creditors have experienced in-house teams that can effectively handle these restructuring arrangements without need for complex and contentious work – the stuff that necessitates and excites insolvency lawyers.

The more obvious reason why Asia has not seen a blow out of insolvency work is because government stimulus programs have pumped a massive amount of liquidity into the world’s economies. Linklaters partner Melvin Sng said that the fiscal boost enabled many stressed companies to refinance their maturing obligations and government rescue plans allowed banks to shore up their balance sheets.

However Sng warns that the government injection of liquidity among the domestic banks will not last forever and soon the weaker corporates, both in and out of Asia, will cease to have access to cheap money. “If the macro economic environment and the appetite of banks to lend do not improve sufficiently to offset the withdrawal of government stimulus programs, weaker corporates will need to restructure their debts or go insolvent,” Sng said.

Sng told ALB that the fundamental problems in Asia of overcapacity in some economies and high leverage in certain sectors remain unresolved. As the effects of the liquidity boost wears off in 2010, even stronger companies may need to restructure or refinance their debt. Sng said that certain sectors of the economy including manufacturing and shipping may come under particular stress.

“Although in Asia, markets have rebounded more quickly than elsewhere, the recovery is still very fragile and there is a sense that a second dip may be round the corner,” Sng said. “We therefore anticipate a further round of corporate defaults over the next 18 months which will generate increased insolvency and restructuring work.”