As measures to temper the effects of the pandemic fall away, there is potential for a significant uptick in creditor activity: increased interest rates, geopolitical uncertainty, government (non-)intervention, shrinking unencumbered asset pools and difficulties with valuations will affect the ability of borrowers to afford existing debt and their options for new credit in the future. The build-up of debt to hit growth targets is not sustainable where demand for the relevant goods or services has dropped and potentially the ability to obtain financing on manageable credit levels is lost, replaced (if at all) by short term debt at unsupportable rates, as seen in the Chinese property developer sector.
The regimes for restructuring in Bermuda, the Cayman Islands and the BVI, including light touch provisional liquidation, remain integral to addressing the failures of Hong Kong-listed, Bermuda/Caribbean-incorporated entities with assets predominantly in mainland China and often English or New York law governed debts. These restructuring regimes play a particularly important role against the backdrop of the recent mutual recognition and assistance regime recorded among Hong Kong and certain pilot cities in mainland China, which will continue to evolve over the coming months and for which demonstrable control through the corporate chain may be a prerequisite.
Of noteworthy legislative reforms offshore, the Cayman Islands anticipate the introduction in 2022 of a new restructuring officer regime to be available without presentation of a winding up petition and offering an automatic worldwide moratorium.
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