Daily Insolvency News Headlines

Mon., November 24, 2014

Mon., November 24, 2014

Chains of guarantees, in which companies back loans to other firms, are causing pain for the wider Chinese economy, The Wall Street Journal reported. The central bank cut benchmark lending and deposit rates on Friday to reduce financing costs for companies and help revive growth. Guarantees played a large role in fueling China’s rapid debt expansion over the last six years. About a quarter of the $13 trillion in total outstanding loans as of the end of October was backed by promises from other companies, individuals and dedicated guarantee companies, often undercapitalized, to pay up if the borrower defaults. Lenders outside the traditional banking system—so-called shadow bankers—also embraced guarantees, seeing them as a way to assure nervous investors that their funds were secure and to circumvent government restrictions on lending to certain types of businesses. Reliance on these guarantees is now backfiring, regulators and analysts say, resulting in a surge of bad loans that banks had assumed were insured and threatening financial contagion. The China Banking Regulatory Commission said in a notice to banks in July that bankruptcies in these “guarantee chains” could “trigger regional financial crises.” Read more. (Subscription required.)

Mon., November 24, 2014

In a related story, China’s central bank said its surprise move to cut interest rates for the first time since 2012 is designed to help small firms and protect depositors instead of all-out monetary easing. How the nation’s lenders respond will determine if it works out that way, Bloomberg News reported. The bulk of bank debt in China is still concentrated on big borrowers, with outstanding credit to small firms less than a third of total loans. The People’s Bank of China’s rate cuts came after months of targeted measures failed to lower financing costs for smaller companies. Since its last move in July 2012, the PBOC has sought to keep growth ticking over while reducing debt expansion and increasing scrutiny of the shadow banking industry. The switch to broad-based stimulus risks a step back if lenders return to old habits of channeling loans to state-owned firms rather than more productive private enterprises. Outstanding bank loans to small businesses were 14.6 trillion yuan ($2.38 trillion) at the end of September, or 29.6 percent of total outstanding corporate bank loans, PBOC data showed. Private small businesses typically have limited access to raise money through bond or stock markets. Read more.

Mon., November 24, 2014

The Greek authorities presented a budget Friday that forecasts healthy growth after a deep recession and includes substantial tax cuts for the first time in four years. But the upbeat assessment lacked the approval of the country’s international creditors, who remain skeptical that Greece can meet economic targets amid political uncertainty, the International New York Times reported. The budget, introduced in Parliament by Finance Minister Gikas Hardouvelis, predicts that the economy will grow by 2.9 percent in 2015. The Greek economy has shrunk by one-quarter since 2008. The blueprint is expected to face a vote on Dec. 7. Last week, European figures showed that Greece, once the epicenter of the euro crisis, grew faster than any eurozone country in the third quarter of this year, expanding 0.7 percent over the previous quarter. However, the country’s troika of international creditors has not approved the plan, and Christos Staikouras, Mr. Hardouvelis’s own deputy, indicated that the lenders were not convinced that Greece would meet its budget targets for next year. Read more. (Subscription required.)

Mon., November 24, 2014

The government has won an argument over insolvency creditor meetings, despite opposition from influential business groups, economia reported. Business groups, including ICAEW and insolvency trade body R3, had told the government to back down on its insolvency reforms – as part of the small business bill – which will see insolvency meetings with creditors banned unless requested by at least 10% of creditors. Joined by the Federation of Small Businesses (FSB) and the British Property Federation (BPF), ICAEW and R3 called on the government to accept an opposition amendment to the bill, which would allow meetings to take place if just one creditor requested it. Bob Pinder, ICAEW director of professional standards, said it was up to insolvency practitioners to decide how meetings were arranged, not the government. “The proposed measures to remove discretion to hold meetings is micro-managing the insolvency process,” Pinder said. “Insolvency practitioners use their professional judgement every day, often dealing with assets worth many millions of pounds. They should be able to choose the most appropriate mechanism to engage with creditors.” However, these claims were refuted by the Insolvency Service, which said that physical creditors meetings were too poorly attended to be effective. Read more.

Mon., November 24, 2014

Australian food franchise Pie Face has collapsed into voluntary administration. In a statement released to SmartCompany, the Pie Face Group confirmed Jirsch Sutherland has been appointed as administrators. However, Pie Face said it is “business as usual” as the administrators conduct a review of the chain’s operations. “The move comes as part of a wider company review, which will see the company focus on supporting the growth of its franchise-operated stores as well as the wholesale business,” Pie Face said. “The international businesses are not affected”. A spokesperson for Pie Face confirmed to SmartCompany there are currently 70 Pie Face franchises across Australia, although the Pie Face website lists 78 outlets, including 15 in the Melbourne CBD and 20 in the Sydney CBD. There are Pie Face stores in all states and territories, except Tasmania, South Australia and the Northern Territory, although South Australians can purchase its pies in On the Run convenience stores. The collapse comes after Pie Face quietly closed six of its seven stores in New York City last month. While Pie Face has previously attempted to expand into India and New Zealand without much obvious traction, the chain is also believed to have agreements to enter South Korea and the Philippines. Read more.

Mon., November 24, 2014

The liquidator of Irish Bank Resolution Corporation has secured a preferred bidder to acquire the assurance arm of the former Anglo Irish Bank, the Irish Times reported. The new owner of the unit is understood to be a large European investor, though the deal remains the subject of final due diligence and regulatory approval. The Department of Finance has to approve any major sale of the bank, whose liquidation is being handled by accountancy firm KPMG. IBRC Assurance has a range of property investments made on behalf of the self-administered pension funds of hundreds of clients. Property investments marketed by Anglo’s wealth management division were wrapped into unit-linked funds from the assurance company, making them more attractive from a tax and pension perspective. Investments were primarily in office and mixed-used developments in London and Dublin. IBRC Assurance was restructured as a stand-alone unit by management in the nationalised bank under its then chief executive Mike Aynsley in order to prepare it for sale. Read more.

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