Distressed Business Opportunities Amidst The COVID-19 Outbreak - Learning To Dance In The Rain

Author:Mr Justin Yip and Zhen Yu Lam
Profession:Withers LLP
 
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The unravelling COVID-19 coronavirus situation has caused significant financial distress in East Asia, and is now making its presence felt in the European and American markets. Analysts are now considering the increasing possibility of a global recession in the first half of 2020.(1) Disruptions to business sectors comprising both supply chain shocks and demand drops are taking place on an unprecedented scale, bolstered by the increased significance played by China in the global economy relative to the 2003 SARS outbreak. Existing weaknesses of businesses will be exposed and accentuated by COVID-19 during this time, even if the economic backdrop slowly recovers.

A likely net effect of these disruptions would be increased disputes and litigations, paired with corporate defaults and insolvencies. It is anticipated that there will be a surge in court applications across multiple jurisdictions for bankruptcy protection. The sooner that businesses take stock of their situation amidst the economic downturn, seek appropriate professional and legal advice, and take the necessary steps to protect their position and/or mitigate their losses, the better the chance that they have of surviving post-COVID-19.

There are however silver linings in the midst of these storm clouds.

Historical data suggests that disruptions to financial markets caused by major pandemics (such as the likes of SARS and MERS) are short-lived, and markets are quick to rebound within 6 months after the pandemic has passed.(2) The effect of COVID-19 is also not homogenous across the whole economy, with certain business sectors (such as retail, hospitality, transport) being more impacted than other sectors which have experienced minor disruptions or even a boost (such as healthcare, online services).

Geographically, some economies are less exposed to the potential economic fallout in China. There may also be greater market confidence in businesses in countries which respond positively and demonstrate resilience in...

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