HERE ARE SOME CISI LEARNING RESOURCES YOU MAY FIND USEFUL


Insolvency and bankruptcy cisi.org/insolvency


Managing operational risk cisi.org/mor


Trading debt securities in an inflationary environment cisi.org/debtsecurities


Business protection cisi.org/businessprotection


Let’s get down to business protection cisi.org/businessprotection2


Corporate insolvency: the Covid-19 context cisi.org/insolvency-covid


fundamentally weaker firms to limp along restricts opportunity and markets, exposing better managed companies to greater risk and competition that would otherwise not be there. This is arguably exacerbated by legislation that has provided heightened protection for business owners, for example, the UK’s CIGA and the Coronavirus Act 2020, which suspended liability for wrongful trading, making it more difficult for insolvency practitioners to challenge directors over their conduct. The suspension ended in June 2021. Interest rate rises will likely sound


the death knell for many unsustainable companies whose future has already been made parlous by inflation. A rapid series of hikes has left the main US Fed funds rate at 4.5-4.75%, its highest in nearly 15 years as the US looks to combat double-digit inflation. This follows increases in Brazil, Canada, Australia, and Europe. Similarly, the Bank of England raising its key rate to 4% in February 2023 – it was 0.1% as recently as December 2021 – seems certain to further accelerate the UK’s insolvency surge.


CISI.ORG/REVIEW


Rising interest rates “Inflation is hard to tackle without driving up interest rates and making liquidity less available, which inevitably will be a driving force in many insolvencies,” says Chris Kennedy. “Is that a flaw of capitalism? Probably. But what’s the alternative?” Capitalism is flawed but inflation is not


being tamed by what’s been done so far, he says, adding that interest rate rises and an increase in insolvencies are inevitable. When the flaws manifest themselves in


events such as the collapse of cryptocurrency firm FTX in 2022, (see ‘The coming crypto crunch?’ on CISI TV) and the collapse of Silicon Valley Bank in March 2023, they hit the headlines. Such is the turbulence that periodically affects most of the business world. The heavy fall of the S&P 500 in 2022 still left the index some 170% higher than it was ten years earlier. Like the bigger companies, the sort of firms that become insolvent are part of the same cycles. Most forecasters expect the S&P to resume its upward trajectory, even if it takes a while. Similarly, insolvencies may grow in 2023 but are likely to recede again as part of the cycle.


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