Sources:
Written by Samantha Delouya, 17 Aug 2023
Covered by Angela Tan, 5 Nov 2023
Analysis by Tay Peck Gek, 22 Jan 2024
Bankruptcies
Whether corporate or individual, this term is not one that anyone forecasts for. Yet in this ageing economy and rising credit cycle, it may be inevitable.
Bankruptcies are part and parcel of a normal economic cycle. One, which may come unexpected and requires much financial fixing.
In this article, we explore how bankruptcies affect surrounding businesses in the supply chain as well as the individuals involved – e.g. Directors and Bond holders of the companies involved.
Let’s start from the simplest and most basic building block – Individual Bankruptcy.
Individual Bankruptcies can be traumatic and even socially taboo. In most Asian societies, they are a term most do not reveal as it leads to their peers distancing away from them.
Bankruptcies are detrimental to the overall economy as a whole as well. It affects the supply chain and their normal function in a growing economy.
One would expect that businesses can find alternatives, whether suppliers or distributors. But the answer is not that simple .
This is because there is real talent loss from actual individual bankruptcies. From the familiar faces and their wisdom and academic background to connections, to the length and breadth of their business knowledge.
Bond holders who have taken on the risk of those real world assets, through enticing financial returns, have their party cut short.
Their financial boost have allowed for the creation of realised property, plant and equipment. (Like Hyflux)
However, individual bond holders may opt to make their case in court to transform their debt obligations into preference shares (which are dividend paying in obligation to reward their financing of taking on risk in early stage risky companies)
Truth be told, bankruptcies affect real world people and real world lives. While as a whole they are an inevitable shift in economic status, they are also part of normal economic activity that rewards the winners and punishes the losers.
It is like natural selection is to our distant ancestors in the hunting age.
While bankruptcies on the individual level may hurt families, corporate bankruptcies are another consideration altogether.
Corporate Bankruptcy:
- Accounting adjustments
- Real Estate Foreclosure
- Employees retrenchment
- Distribution to shareholders
- Debt forgiveness
- External scrutiny
- Corporate negotiations
- Bank Recovery (and possibly M&A, splitoffs) and Central Bank maneuvers
1. Accounting Adjustments
In a rapidly approaching positive interest rate environment – think Japan Central Bank or European Central Banks. It is normal for companies to go under if they are unable to quickly meet and adjust for the changes in interest rate debts.
By Fitch Wire, 21 March 2024
The change in Japan interest rate, the adjustment from a negative interest rate to that of a positive interest rate. This has profound impacts on the Yen, the rise of the Japanese consumer and the readjustment of Bank account interest rates across Japan.
By Laura He
2. Real Estate Foreclosure *Disclaimer not financial advice – +Lessons from Japan management of Real Estate for China [Opinion]
We often hear about the deserted Real Estate buildings in China rural cities and their contrast against Japan’s $0 real estate and their financial incentives for staying long term.
This is a real problem that is easily fixable, through the incentivisation of Hong Kong, Taiwan incentivisation schemes to fill those cities.
What is required are water reservoirs as gas and electrical infrastructure is already in place.
Back on topic, Real Estate foreclosures provide a opportunity for new buyers to step in and a artificial albeit temporary cooling effect on the real estate market. (As a whole)
Deals in properties can be very attractive and place a significant discount on current existing property values as debtors are forced to liquidise.
3. Employees Retrenchment
Disruptions to stock endowments can be replaced with ordinary shares of the displaced entities.
Private Equity can step in to provide credit facilities and liquidity to companies that go under due to a oversubsidy at early stages.
Companies can regain market share by means of marketing through the 4P’s through acquisition of Real Estate real assets.
4. Distribution to Shareholders
Ordinary shares can be distributed to ex-employees vis their work length and contribution to the company.
Previous stock endowments can turn into ordinary share purchase options that can be considered by both employer and ex-employee. With the terms to be negotiated through business negotiation.
5. Debt Forgiveness
Central bank led
6. External Scrutiny
7. Corporate Negotiations
8. Bank Recovery (M&A + Splitoffs)
Reformation of business entities and redevelopment of real estate to become carbon negative
DFDS 
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