EAST AFRICA: RESTRUCTURING QUARTERLY BULLETIN NOVEMBER 2021

KENYA

Introduction

The lifting of the curfew that has been in place in Kenya since March of 2020 has breathed new life to the economic environment, and it is expected that a majority of businesses whose operations had been adversely affected by the curfew restrictions will be able to revert to pre-curfew levels of operations and increase their profitability, which would translate to a general improvement in the state of the Kenyan economy.

Alongside the lifting of the curfew, a KES 25 billion stimulus package was announced by the President which was focused on the following sectors of the economy: agriculture, health, education, drought response, policy, infrastructure, financial inclusion, energy and environmental conservation. With effect from 1 November 2021, it is anticipated that the stimulus package will accelerate economic growth.

In a welcome reprieve for borrowers, the President announced that borrowers who have defaulted on loans which are less than KES 5 million will not be blacklisted by the credit reference bureaus. The suspension will last for 12 months until September 2022. He also stated that those who have already been blacklisted for non-payment of loans for the same amount will be removed.

Corporate Updates

Banks are increasingly allowing defaulting borrowers to sell real estate assets that have been secured in favour of the Banks via private treaty (i.e. a bilateral sale between the defaulting borrower and the buyer) rather than auctioning the real estate assets or selling them via private treaty. The proceeds from the sale are then used to settle the Bank’s debt. A direct disposal by the borrower is quicker than the sale process required to be followed by Bank’s and other secured creditors under the Land Act.

A number of companies have had to restructure or are undergoing insolvency processes in order to deal with their obligations to creditors. The following companies have featured in the press over the last 3 months:

• Sodium carbonate maker Tata Chemicals Magadi is restructuring after facing financial challenges amid falling revenue and high operating costs owing to the effects of the COVID pandemic, high royalty rates, high levels of taxation such as the railway development levy and delayed VAT refunds from the Kenya Revenue Authority.
• Phoenix Publishers Limited, a Kenyan owned general publishing company, is under financial distress due to a sharp drop in educational books after months of school closures due to Covid-19. On 25 June 2021, it was placed under administration for a period of one (1) year.
• Britania Foods, the manufacturer of biscuits, was also placed under administration on 6 August 2021 after defaulting on loans of more than Sh1.3 billion provided by Diamond Trust Bank and other creditors.
• Spire Bank’s troubles continue: its defaulted loans had overtaken its net loan book as of 6 September 2021. It is reported that it requires at least KES 4.14 billion to stabilise its operations and meet the Central Bank of Kenya’s minimum capital requirements for banks in Kenya. Spire Bank is in talks with four (4) potential investors who are undertaking due diligence on the Bank in an attempt to dig it out of its financial troubles.
• On July 2021, the Supreme Court upheld a 2018 High Court decision allowing Stanbic Bank Kenya Limited to auction assets of Karuturi Limited (in receivership) over the debt of Sh1.8 billion amid challenges by other creditors. The company had been placed under receivership in 2014 after failing to service a KES 383 million loan borrowed from Stanbic. The High Court had directed Karuturi to settle KES410 million pre-receivership loan in 60 days. It was further directed by the High Court that the owners of Karuturi settle KES640 million, which Karuturi owes creditors other than Stanbic, and KES680 million advanced to Karuturi by Stanbic after it was placed under receivership.
• The Kenya Airports Authority has requested a cash bailout from Treasury amid piling debt, arguing that a decision by the Treasury to recall KES12.5 billion of surplus cash from its accounts in December 2019 left it financially distressed and unable to settle supplier debt. The situation was made significantly worse in 2020 when all airlines in Kenya were grounded in line with global travel restrictions. KAA has indicated that it has been forced to withhold payments to contractors and suppliers who are owed a total of KES 7.5 billion.
• The Treasury has agreed to inject cash into Kenya Power and Lighting Company and Kenya Airways Plc, which are currently in financial distress, in the financial year starting July 2022, a decision it stated was informed by its recognition of the two entities’ vital role in supporting economic recovery from the effects of the COVID pandemic. The Appropriation Bill, which informs sectoral budget proposals including the proposed KPLC and KQ cash injections, is expected to be ready for parliamentary consideration and approval by March 2022.
• WPP Scangroup restructured its balance sheet in order to protect its distributable reserves. A company is only permitted to pay dividends if it has distributable reserves.
• Mumias Sugar (in receivership) underwent a bidding process where bidders were required to submit bids to lease and run the distressed sugar factory. The results of the bidding process are yet to be announced, although it is reported that businessman Julius Mwale placed the highest bid of Sh27.6 billion.
• KCB, Equity Bank, Co-op Bank, I&M Bank, Absa Bank Kenya PLC, Diamond Trust Bank and Stanbic Holdings are reported to have cumulatively reduced their provisions for loan defaults by 33.5% in the 6 months to June 2021 on the back of less stringent Covid-19 restrictions being imposed by the Government which are thought to have improved the operating conditions for businesses.
• Kenyatta University has slipped into a KES1.3 billion deficit in the year ending June 2021. A report by the Auditor-General revealed that the University is relying on costly borrowings, which may further worsen its liquidity problems. If no remedial steps are taken to improve the University’s financial position, it may not be able to meet its mandate in the future.

Interesting developments in case law and its implications

In East African Cables Plc -vs- Ecobank Kenya Limited, SBM Bank (K) Limited (Interested Party) [2020] and In Re Hi-Plast Ltd [2019], the Courts have held  that (i) claims of secured creditors rank in priority to claims of all other creditors (which was generally understood to be the position by insolvency practitioners) and (ii) rights over secured assets may be exercised at any point and subsist regardless of whether administration or liquidation has been commenced in respect of a company such that neither an administrator nor a liquidator may interfere with the exercise by a secured creditor of its rights under a security document or the law. An administrator or liquidator has rights and exercises control over a secured asset subject only to the rights of a secured creditor, who may appoint a receiver even after the company has gone into liquidation. Where a receiver has been so appointed, the Court will not, if the appointment is valid and in compliance with the underlying security document and mandatory statutory provisions, displace the receiver by appointing the liquidator in his place.

In Uzuri Foods Limited and Leanity Dynamics Africa Limited vs Britania Foods Limited Insolvency Cause E002 of 2021, one of Britania’s unsecured creditors, Uzuri Foods Limited (Uzuri), has filed an insolvency petition against it in relation to a debt of approximately KES 17.3 million on account of supplies made to Britania between March and August 2019. The Court has issued an injunction in respect of the liquidation petition filed by Uzuri in light of the ongoing administration of Britania.

In Nairobi Business Ventures Limited -vs- Greenhills Investment Limited [2021], the Court held that, while not expressly provided under the Insolvency Act or the Insolvency Regulations, the Courts have inherent power to set aside a statutory demand made against an insolvent company as well as a bankrupt natural person if the Court finds that the demand or threatened insolvency proceedings are not well founded.

Article by Richard Harney, Joyce Mbui, Vruti Shah and Winnie Oduor.

UGANDA

The latest data from the Uganda Registration Services Bureau (URSB) indicates that more and more firms are registering for liquidation. The firms have risen to 94 in the financial year 2020/ 21. Out of the 94, at least 26 have been liquidated and two are in administration to help them survive the next phase of growth. More are expected to go into administration. 

Corporate Updates

Telecom industry

On 5^th October 2021, Uganda’s largest telecom network, with over 10 million subscribers, announced its intention to proceed with an Initial Public Offer of 20% of its shares and subsequently list in the Uganda Securities Exchange. The potentially largest IPO on the Ugandan market was triggered by a mandatory condition for the renewal of its license by the Uganda Communications Commission. A similar condition has been imposed on the second largest player in Uganda’s telecom industry, Airtel Uganda Limited (a subsidiary of Bharti Airtel Limited), and it is expected to float shares by the end of 2022.

While the larger players are floating shares, the following smaller players are struggling:

• Africell, the third largest telecom in Uganda, will be leaving the country. Having entered the country in 2014 after acquiring Orange Uganda, the telecom has found it hard to compete with MTN and Airtel. In 2019, the company was reported to be in debt to the tune of about USD 70.7 million and in the same year made a loss of about USD 424 million.
• Smart Telecom, owned by the Aga Khan Fund for Economic Development (AKFED), closed operations on 31^st August 2021. The company explained that after seven years, the increased operational challenges arising from the COVID-19 pandemic had forced it to close its doors.
• The Uganda Communications Commission has also indicated that it is keeping a close eye on another player, Smile Telecom, whose parent company, Smile Telecoms Holdings, has been embroiled in a dispute that threatens the company’s stability. After the exit of its co-founders to give way to restructuring experts, two of its largest shareholders got locked into a dispute. The dispute was over a contract that gives the majority owner the right to pursue a put option. It is now reported that the dispute has been settled. The lenders to Smile Telecoms Holdings Limited have agreed to reschedule its debts for a year; it has also received a capital injection of USD51 million, and the local subsidiary has expressed optimism going forward in spite of these difficulties.

Uganda Telecom Limited (UTL), which used to be a big player in the market, has been under Administration for the last four years. The former administrator says the company is recovering from its debt load with claims from creditors reduced from USD 250 million to USD 145 million. Other efforts to revamp the company are on-going; the company signed a partnership with AST SpaceMobile that will enable the company to deliver satellite internet across the country, even to previously inaccessible terrains and rural parts of Uganda.

Banking sector

The Bank of Uganda’s Credit Relief Measures expired on 30^th September 2021. These measures were instituted in April 2020 to maintain financial stability and reduce the economic impact of COVID-19. See our article here on the measures. The restructuring period was extended up to 30^th September 2021. In spite of the expiry of the period for restructuring, the Central Bank has committed to continuing with interventions on a case-by-case basis for sectors that remain under lock down. These sectors include: the entertainment, sports and education. The Central Bank has also pledged to maintain the COVID- 19 Liquidity Assistance Program to ensure financial stability until the economic situation normalizes.

The Central Bank on 20^th August 2021, issued a circular to the chief executives of commercial banks, credit institutions and Micro Deposit taking Institutions (MDIs) proposing to raise the paid-up capital requirement of commercial banks from the current Shs25bn to Shs150bn, credit institutions from UGX1bn to UGX 25bn and MDIs from UGX 500milion to UGX10bn. The measure is meant to ensure financial institutions have the muscle to safeguard depositors’ money and ensure they have access to it when needed. There is concern that this will squeeze out small players who are unable to match the proposed requirements. For example, 15 of the country’s 25 commercial banks have capital that falls far below the proposed new capital requirements. It is expected that those that fail to match the capital requirements will either merge with other entities or exit the market.

The Bank of Uganda has withdrawn its appeal against Crane Bank (In Receivership) in the Supreme Court. The High Court and the Court of Appeal in this matter had found that an entity in receivership, unlike one in liquidation, can neither sue nor be sued under the Financial Institutions Act. The withdrawal of the appeal by the Central Bank confirmed this position.

Retail sector

Leading retailer Shoprite is set to exit the Ugandan market after 21 years. The company has been reportedly reviewing its long-term options across Africa over the past year as currency devaluations, lower commodity prices and high inflation have hit household incomes and weighed on earnings. Its operations have been taken over by CarreFour.

Article by Jonathan Kiwana and Brian Kalule.

TANZANIA

As per the Bank of Tanzania (BOT) reports, prior to the outbreak of COVID-19 pandemic, macroeconomic conditions in Tanzania were stable. The economy experienced robust growth, which averaged 6.7 percent from 2010-2019 and inflation declined to as low as 3.8 percent in 2019. Credit extended to the private sector by banks grew at 15 percent, while lending rates declined to 17 percent from more than 20 percent.

As a result of the COVID-19 pandemic, economic activities in Tanzania have been heavily affected, partly due to lockdown measures and travel restrictions implemented in countries that trade with Tanzania. Private sector credit growth has also been low, ranging from 2.3 percent to 9.1 percent. Interest rates on loans charged by banks have remained high, at about 17 percent, despite monetary expansion and other measures adopted.

The COVID-19 pandemic has led to businesses in Tanzania to face severe financial disruptions, forcing an increasing number of companies to consider major business restructuring or even the closure of operations. At the end of last year, we saw the BOT placing the China Commercial Bank Limited (CCBL) under statutory administration for failure to meet regulatory requirements regarding capital adequacy. In March 2021 NMB Bank Plc completed the acquisition of all assets and liabilities of CCBL.

Further we observed some increase of merger and acquisition activities in the market for instance Akiba Commercial Bank merging with the National Bank of Malawi to strengthen its capital base to meet requirements of the BOT for operations of commercial banks in the country.

In response to these challenges, the government has been taking measures to lessen the impact of the pandemic on economic activities and promote growth. However, growth has slowed to 4.8 percent in 2020, down from 7 percent the previous year.

 

Driven by the aim to provide incentives which would increase the rate at which credit is provided to the private sector and also lower interest rates, the following are some of the policy measures implemented by BOT with effect from 27 July 2021:

1. Reduction of the statutory minimum reserve requirement (SMR).

   A bank that extends credit to agriculture shall be eligible to a reduction in SMR amount, equivalent to the loan extended. In addition, a bank shall be required to submit evidence of lending to agriculture at interest rate not exceeding 10 percent per annum. This measure intends to increase lending to agriculture, which is the mainstay of Tanzanians. It also aims to reduce the interest rate on loans to agriculture.

2. Relaxation of agent banking eligibility criteria.

   The BOT has removed the regulatory requirement of business experience of at least 18 months for applicants of agent banking business. Instead, applicants for agent banking business shall be required to have a National ID Card or National ID Number. This policy measure is expected to contribute to increase in loanable funds to banks through deposit mobilization. The measure also intends to lower lending rates.

3. Limitation of interest rates paid on mobile money trust accounts.
   Mobile money trust account balances held with banks shall be eligible to interest rate not exceeding the rate offered on savings deposit account by the respective bank. This will contribute to lowering cost of funds to banks, thus helping to reduce lending rates.

4. Introduction of special loans amounting to TZS 1.0 trillion to banks and other financial institutions for on-lending to the private sector.

   The BOT shall provide a special loan to banks and other financial institutions at 3 percent per annum for pre-financing or re-financing of new loans to the private sector. A bank wishing to access the special loan facility shall be required to charge interest rate not exceed 10 percent per annum on loan extended to the private sector. This measure intends to increase liquidity to banks and reduce lending rates.

5. Reduction of risk weight on loans.

   The BOT shall reduce risk weight on different categories of loans in computation of regulatory capital requirement of banks. This measure will provide an opportunity for banks to extend more credit to the private sector than before. The measures have been taken in accordance with the BOT Act, Cap. 197 and National Payment Systems Act, Cap 437.

   The BOT shall provide additional details to banks, other financial institutions and mobile money providers on the measures adopted. In addition to these measures, the BOT has further directed banks and other financial institutions to implement strategies of lowering lending rates and increasing deposit mobilization.

Article by Aisha Sinda and Wilbert Kapinga.

MAURITIUS

Whilst it comes as no surprise that Mauritius is in the midst of an unprecedented crisis in the wider context of the state of the world’s economy and health system, as a small island state with a heavy reliance on the tourism sector, the impact of the closure of its borders since March 2020 has been debilitating to Mauritius. The opening of the borders on the 1^st October 2021 is therefore widely seen as the lynchpin to the revival of the economy, with the success of the move of critical importance to the long-term economic stability of the country.

There is general consensus that the government of Mauritius (the Government) will not be able to continue providing support through the wage and self-employed assistance schemes (the Schemes). Given its importance and the dire consequences on employment and the social fabric of the country in the event that such support is cut off at this point, the decision has been taken by the Government to extend the Schemes to the Tourism sector in particular as well as to the informal services sector forming part of that ecosystem, until the end of December 2021. The decision to extend such support will cost an additional MUR 2 billion to the Treasury. It is a decision that the Minister of Finance has justified through a willingness to ensure that the vulnerable but important informal services sector is given as much support as possible to navigate the crucial initial months of the re-opening of the economy.

Corporate Updates

Air Mauritius

The end of the third quarter and the re-opening coincided with the national carrier, Air Mauritius, in voluntary administration since April 2020, holding its watershed meeting on the 28th September 2021 with a proposal to creditors to approve a deed of company arrangement (DOCA). Back in June 2021, when seeking an extension to the holding of the watershed meeting, the administrators declared being involved in discussions in relation to the funding and further restructuring of Air Mauritius with final proposals depending heavily on the financial support that funders are likely to consider. The position of the administrators was that the outcome of those discussions would result in the holding of the watershed meeting prior to the 31st January 2022 deadline. This has now been achieved.

As part of the restructuring plan, a new group holding entity, Airport Holdings Ltd (AHL), has been established, with the government as its sole shareholder. As part of the DOCA, AHL will inject MUR 12 billion into Air Mauritius Limited through an advance by the government to settle the debt towards creditors and meet certain operating costs. The overall plan as part of the restructuring process, which includes the corporate as well as the operations elements and which is currently under way, is that AHL will hold, either the majority or the entire stakes, in the following entities and business interests:

• Air Mauritius Limited;
• Mauritius Duty Free Paradise;
• Airports of Mauritius;
• Airport Terminal Operations Ltd;
• Airport of Rodrigues Ltd;
• the duty free of Rodrigues; and
• Cotton Bay Hotel

As a result of the contemplated group restructuring, Air Mauritius Limited, which is listed on the Mauritius Stock Exchange, has informed its shareholders and the public on 15 October 2021, of the firm intention of AHL to make a mandatory offer (Mandatory Offer) to the shareholders of Air Mauritius Limited to acquire all of their voting shares not already held by AHL at a price of MUR 5.80 per share. The Mandatory Offer has been triggered by AHL through its acquisition of the shares held by the State Investment Corporation Limited and Rogers and Company Limited on 13 October 2021, giving AHL effective control of Air Mauritius. The move was preceded by the agreement for the acquisition by AHL of the shares of both Air France and Air India, held directly and indirectly by Air Mauritius Limited.

Restructuring of Operations

In so far as the operations are concerned, the objective is that greater efficiency will need to be achieved and this within a timeframe of 18 months from the date of the watershed meeting. It is in this context that the administrators have taken the initial steps of reducing the existing fleet from fifteen to eleven aircrafts. Negotiations are also ongoing to dispose of two A330-200 planes. The issue which then arises is that of the nine remaining aircrafts owned by Air Mauritius, six are long-haul planes. This may not be adopted to the strategic needs of the company, bearing in mind the markets that Air Mauritius would be looking to service and is a matter that would be high on the agenda of the restructuring plan. It is estimated that the above measures will result in cost savings of MUR 1 billion exclusively on maintenance costs. It is also understood that leasing arrangements for eight planes have been renegotiated by the administrators, with annual savings estimated at around MUR 509 million.

In parallel, on the human resources side, Air Mauritius has introduced through the renegotiation of employment agreements arrangements pertaining to leave without pay, part-time employment, special leave with pay up to 2 years, giving rise to an estimated annual savings of MUR 1.2 billion. The following measures have also been devised by the administrators over a period of five (5) years to achieve the stated aim of streamlining operations:

1. a 50% reduction in the number of countries serviced;
2. seven of its offices out of the seventeen established abroad have been closed;
3. actions have been taken to lay off employees, negotiate with owners and service providers to terminate contracts within a short delay or transfer sales to other offices abroad or to General Sales Agents.
4. workforce within the ten remaining offices have been reduced and subject to restructure from a cost rationalization perspective.

All of the above will allow for cost savings of MUR 150 million annually. Whilst the measures detailed will allow Air Mauritius to continue as a going concern, there is little doubt that these have come at a very high cost, not least with the massive lay-offs causing untold distress amongst employees and their families. The hardest part is that further job losses are expected over the course of the next couple of years, with the airline industry facing a long road back to pre-Covid performance levels. It is noteworthy that the management at Air Mauritius has called upon Centre for Asia Pacific Aviation, as consultants, to assist on the restructuring exercise.

Legal Updates

A recent noteworthy change to Insolvency laws in Mauritius is the introduction of a provision to the effect that the Chief Executive of the Financial Services Commission (FSC) is empowered, for the purposes of discharging his functions, to make a written request for information to a liquidator. The latter shall be bound to provide such information to the FSC should these be in his or her possession. These are in line with the policy objective of the government to equip its regulatory bodies with the necessary tools to effectively monitor its licensees and initiate enforcement action against companies in liquidation.   

Article by Rajiv Gujadhur and Sahirun Subadar.

GLOBAL UPDATES 

United Kingdom

Case Brief on Unfair Prejudice in Company Voluntary Arrangements (New Look, Regis and Virgin Active cases)[1]

The UK Court recently handed down three landmark decisions, the New Look, Regis and Virgin Active cases, that are expected to have a great impact on corporate restructuring, particularly in relation to the restructuring of landlord liabilities. In New Look, the court was of the opinion that lease modifications contained in Company Voluntary Arrangements (“CVA”) that may undermine the landlords’ rights, such as the reduction of the rent payable to prices below the market price, are not necessarily unfair. The courts would not conduct a commercial assessment of the fairness of such modifications as there is no rigid requirement that CVAs must only interfere with the rights of a landlord to the minimum extent necessary, and the landlords’ right to terminate the CVA and seek more favourable alternatives was a sufficient remedy in circumstances where the landlord is dissatisfied with the CVA terms. While a CVA cannot force a surrender on a landlord, a CVA can achieve substantially the same result through a carefully drafted 'termination right’.

While the courts rejected similar challenges by landlords in the Regis case, the judge revoked the CVA after it found that the payment in full of debts owed to the company's shareholder was without commercial justification and therefore unfair to landlords, who were being significantly compromised. However, in the Virgin Active restructuring plan decision, the court approved a compromise forced on dissenting landlords by the votes of secured creditors under which the existing shareholders of a company (who were providing £45m of new money) would retain their shares in full to the exclusion of the landlords holding that the compromise did not prejudice the objecting landlords who 'out of the money' in the relevant alternative to the restructuring plans. The shareholders were treated more favourably as they were providing an appropriate amount of new money in return for their equity on better terms than would be available in the market, and the provision of new money could not be equated to the write-off of past and future rent suffered.

Gas crisis in the UK

There's been a worldwide squeeze on gas and energy supplies. A cold winter in Europe last year put pressure on supplies and, as a result, stored gas levels were much lower than normal. There has also been increased demand from Asia - especially China - for liquefied natural gas and lower supplies of gas from Russia. It has been reported that wholesale gas prices across the world have risen by 250% since January 2021.

The UK has especially been hit by rising gas prices. Since wholesale gas prices started to spike, a number of UK retail energy suppliers have collapsed since they have been unable to pay higher prices for gas, or pass on the increased costs to their customers. The number of retailers who have collapsed stood at 18 as at 2 November 2021 forcing more than 2 million customers to switch suppliers.  The latest casualties were Bluegreen Energy Services Ltd, Omni Energy Ltd., AmpowerUK Ltd. and Zebra Power Ltd.  It is expected that there will be more collapses in the coming months.  

Europe

The number of companies declaring bankruptcy in the euro area declined in the last year on account of overwhelming government support in the form of: public loan guarantees of hundreds of billions of euros, wage subsidies and loan forbearance by banks. There are, however, concerns that Europe has merely bolstered companies in financial distress as the current insolvency trends indicate a sharp contrast to what is to be expected during a recession, with the exception of a number of high-profile business collapses like Norwegian Air Shuttle ASA, Arcadia Group and Wirecard AG.

Business failures would put further pressure on public finances given that the government has granted loan guarantees. For this reason, France’s President, Emmanuel Macron, and other leaders were in a hurry to relax lockdown restrictions. Many businesses that were financially distressed before the pandemic but were able to avoid filing for creditor protection last year will, however, remain in distress. Arguably, many insolvencies have been postponed rather than prevented.

Presently, even the stable businesses have to grapple with large amounts of borrowings in addition to the fact that reopening for business under the current climate brings new risks. After a long hibernation period, companies have to rebuild inventory and rehire staff, all of which could potentially increase their debt liability.

United States

In the U.S, the rate at which companies are filing for bankruptcy has significantly reduced as compared to 2020 during the COVID era and the years before that. It has, however, been suggested that the rate of bankruptcy filings might pick up at the beginning of 2022 as the U.S economy will no longer be driven by the need to address and cope with the pandemic. By April 30 2021, 183 companies had filed for bankruptcy, which is lower than the 207 filings during a similar period in 2020.

As the pandemic admittedly caused a high number of bankruptcy filings, this is being mitigated by the low number of filings being made in 2021. This can be attributed to the U.S Government stimulus which has saved many businesses from bankruptcy filings. Owing to the stimulus, it can be assumed that the slow rate of bankruptcy filings will remain to be the norm for a number of months.

In the U.S, bankruptcies of large companies claiming $ 1 billion have been relatively few with only Belk Inc, Frontera Holdings LLC and Knotel Inc filling for bankruptcy as at April 2021. Regardless, the airline industry, retailers, and oil and gas companies are still struggling, which could translate into more bankruptcy filings.

Generally, the U.S economy is doing fairly well considering the predictions at the onset of the pandemic. To cope with the effects of the pandemic and subsequent loss of revenue, most businesses cut costs, managed their expenses, and creditors were more flexible and accommodating.

China

Evergrande Real Estate (“Evergrande”) is a real estate development company in China that presently owns more than 1,300 projects in more than 280 cities across the nation. The company is involved in more than just real estate development, as they also handle wealth management, the manufacture of electric cars, food and drinks. 

The Company became one of China’s biggest companies by means of debt fuelled expansion where it borrowed more than $ 300 billion. In 2020 however, new laws were enacted in China in a bid to control the amount of outstanding debt by real estate developers. For Evergrande, this meant that it had to offer its properties at huge discounts in a bid to ensure to more money was coming into the business and reduce its debt liability.

Evergrande is currently struggling to meet the interest payments on its debts which has led to a significant drop in its share price.

There are several reasons why Evergrande’s fall could prove fatal to the Chinese economy, amongst these being that many people could lose large sums of money as they paid deposits to the company to facilitate constructions that are still underway or yet to begin, and the company also does business with other companies, including construction, supply and design companies, all of whom could experience a significant drop in their revenues should Evergrande collapse.

These very serious implications following the collapse of such a large company has led some analysts to suggest that Beijing might consider a bail-out to Evergrande.

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[1] Lazari Properties 2 Ltd and others -vs- New Look Retailers Ltd and others (2021) EWHC 1209 (Ch) and Carraway Guildford (Nominee A) Ltd and others -vs- Regis UK Ltd and others (202) EWHC 1294 (Ch)