Top 5 insolvency & restructuring predictions: The year that bounceback bites back

During the pandemic, the government rolled out a series of life rafts for businesses. These included easy and cheap loans through the bounceback; CBILs, and for larger companies, the CLBILS schemes; equity investment through the Future Fund; furlough funding for employee costs; a range of targeted grants, and assistance to restaurants and other businesses considered worthy of extra support. At the same time, winding up petitions and other creditor remedies against companies were suspended.

These schemes achieved their immediate objective. The feared cataclysmic recession was avoided, unemployment did not rise substantially, and company failures stayed low.

However, all this assistance has a price, and 2024 will, in our view, be the year when the costs start to be reckoned. There are costs for businesses. There is likely to be a surge in zombie companies. The benign financial environment during the pandemic meant that many ailing businesses could delay closure. The high numbers of liquidations in monthly insolvency figures may, at least in part, reflect overdue closure of some of these businesses. That is likely to continue. There will also be difficulties for business seeking to refinance the cheap funding in a high-interest rate debt market.

But, in the first instance, this cost falls on the government. Government debt soared to pay for these schemes and governments of any colour will struggle to reduce taxes much while this high debt needs to be borne, particularly with interest rates as high as they are. This is likely to lead to greater scrutiny of the use of funds during the pandemic and the options for recovering the funds, or at least punishing the miscreants.

In 2023, there were several government announcements on chasing improperly used bounceback loans. This focussed particularly on the more complex cases involving networks of companies and larger sums. At the larger end, we also saw the continued unravelling of the Greensill saga. We have also seen the propriety of awards of PPE contracts questioned.

A probable change of government and associated scrutiny of past governmental actions is likely to add momentum to this movement.

The year is also likely to see greater enforcement of directors’ duties as high interest rates push more businesses into insolvency and questions are asked about who to blame. 2024 is then likely to be a year of reckoning for directors, and particularly those who have improperly used pandemic era funding.