At this time of heightened restructuring activity globally, what are the key challenges facing the industry and how does the restructuring landscape vary worldwide?
In Q1 2024, CSC canvassed the views of 150 senior executives in the financial services, legal, private credit, and private debt sectors globally to gauge views on the state of the global restructuring industry.
The results of this research are revealed in our new report—The State of Restructuring 2024.
Regulatory hurdles and geopolitics: the two biggest challenges overall
According to CSC’s research, 94% of respondents were either “significantly positive” or “positive” about the impact that regulatory changes, such as the EU Directive on Restructuring and Insolvency, have had on the restructuring landscape.
However, overcoming regulatory hurdles was identified by about two thirds (65%) of our respondents as a challenge in a restructuring, although only 3% regard it as a “significant” challenge.
This was followed by geopolitical issues, identified by 55% of respondents as a challenge, including 16% who see it as being a significant one.
Lack of experience with downturns is regarded as a significant challenge
Many individuals currently in management have little or no experience in dealing with the challenges of a systemic downturn and more of our respondents (17%) identified this as being a significant challenge than any other factor.
This is particularly the case in the APAC region where nearly 40% of respondents identified management inexperience of a downturn as being a significant challenge.
The CSC’s restructuring experts found that management teams often have a difficult time transitioning from “normal company operations” to those needed in a bankruptcy proceeding. It is crucial for managers to recognize the need to think and act differently to survive. Having a sound strategy and the support of experienced providers who can move quickly to assist becomes invaluable.
North America and Europe currently offer the most restructuring opportunities
North America and Europe (excluding the U.K.) were each selected by about two fifths (41%) of respondents as the geographies currently experiencing significant restructuring activity, with their mature regulatory frameworks making them attractive to companies beyond their own borders.
Both ranked ahead of the U.K. (30%) and APAC (29%).
Shifting regulatory environments make some regions more attractive for companies to go through a court process. The U.K., for instance, has become more appealing for restructuring, with foreign companies taking advantage of the new restructuring plan (introduced under the Corporate Insolvency and Governance Act 2020). As with Chapter 11 in the U.S., it includes the concept of cross-class cram-down, a major development for the U.K. legal system.
In CSC’s experience, such regulatory changes are making certain jurisdictions more attractive, resulting in the high use of centre of main interests (COMI) shifts.
Our research backed up this view, with more than half of respondents (53%) saying that the utilization of COMI shift and cross border restructuring techniques helps navigate through cross border restructuring deals.
Markets across APAC are developing sharper teeth
Encouragingly, 71% of respondents in APAC expect the volume of restructuring mandates to increase in the next 12-24 months and the industry appears to be maturing across the region.
Currently, if a company in the APAC region has a link to either the U.S. or Europe, a restructuring may take place in one of those regions. But as the level of confidence in regulatory frameworks across APAC gradually increases, albeit from a low base, this has the potential to change.
In APAC, legislation and applications are becoming more widely recognized and providing creditors with better protections.
For example, Singapore remains the most robust jurisdiction for enforcement and has Section 211E for debtor-in-possession financings, while both the Penundaan Kewajiban Pembayaran Utang (PKPU) in Indonesia and the National Company Law Tribunal (NCLT) in India are becoming more viable. This is forcing borrowers to the table to negotiate rather than ignoring the claim or continuing to amend and extend.
Who can help with restructuring activity increasing worldwide?
CSC provides restructuring expertise with highly experienced professionals across a variety of products and truly connected, global cross-border service.
One of the things that differentiates us from many of our competitors is that we’re able to provide an all-in-one integrated offering, eliminating the need for multiple outsourcing partners.
Interested in finding out more? Discover what’s driving the rise in restructuring mandates and what companies need in a corporate service provider. Download our State of Restructuring 2024.
