The Times - UK (2020-08-03)

36 1GM Monday August 3 2020 | the times

Business

Britain should prepare its courts for a
flood of bankruptcies in the next few
months and needs to liberalise its
insolvency system to prevent viable
businesses from going bust, a senior
American economist and policymaker
has warned.
Randall Kroszner, who sat on the
Federal Reserve’s board of governors
during the financial crisis, said that
policymakers should take a pragmatic
approach to corporate insolvency to
protect jobs and to preserve as much
economic value as possible.
He urged politicians to avoid being
seduced by false hopes of a swift,
V-shaped, recovery. “Of course politi-
cians are reluctant to look to the
negative,” he said. “Everybody wants a
V and if you have a V you don’t have to
worry about widespread bankruptcy
and restructuring. But we have to

Rules on insolvency ‘must be eased

to prevent flood of bankruptcies’

Gurpreet Narwan
Economics Correspondent

acknowledge that this might be the

case, so it’s important to be prepared for

that and to minimise the damage.”

Governments around the world have

begun to adapt insolvency laws to try to

mitigate against the consequences of

an expected surge in business failures.

In March, Britain suspended laws on

wrongful trading, allowing directors to

keep technically insolvent companies

open during the pandemic without fear

of legal action. Under wrongful trading

laws, directors can be sued for failing to

wind up a company if it is running out

of cash and facing insolvency.

Nevertheless, politicians and

bankers are braced for a wave of

business failures. Companies have

borrowed billions of pounds through

government-backed loans and econo-

mists are warning that many will

collapse under of unsustainable debts if

economic demand does not recover

quickly enough.

Professor Kroszner, of the University

of Chicago’s Booth School of Business,

said that a relaxation of the insolvency

rules could help to protect jobs and

economic activity. “Given the number

of bankruptcies are likely to go up quite

significantly, it can be better for the

economy and better for the debt-hold-

ers to not [wind down the business] and

to do a restructuring that maintains

employment,” he said.

“You won’t have the same liquidation

and everyone being turned out of work.

You can say, ‘OK, there’s a solid

operation here with a high debt, so we

want to restructure the debt burden but

we want to maintain the underlying

economic activity.’ That’s good for the

economy, good for the workers and

good for the bond-holders.”

He said that a good bankruptcy

system was able to distinguish between

unviable, or zombie, companies and

those that would have survived were it

not for Covid-19. Professor Kroszner,

58, drew on the example of Chapter 11

proceedings in the United States, which

allow businesses to operate while pay-

ing creditors through a restructured

payment plan and for directors to con-

tinue to run the business. Governments

worldwide have borrowed from

Chapter 11, but many of the benefits are

available only in America.

In May, Chapter 11 proceedings in the

US soared by 48 per cent, prompting

bankruptcy experts to warn of poten-

tial delays in processing claims. They

said that many viable businesses would

be forced into liquidation prematurely

if backlogs grew excessively. A group of

academics wrote to Congress, urging

policymakers to hire more clerks and to

bring judges out of retirement.

Professor Kroszner said that British

courts would face similar challenges.

“Having a very effective and efficient

bankruptcy, where you have expedited

bankruptcies and sufficient resources

in the legal system, is very important,”

he said.

The Bank of England has been warned
against a big increase to its quantitative
easing scheme by the governor who
started its money-printing programme
more than a decade ago.
Lord King of Lothbury, 72, said that it
would be “premature” for the Bank to
embark on “big monetary stimulus”
while much of the economy was shut.
Mervyn King, as he was, started quanti-
tative easing in 2009 to unfreeze the
financial system in the credit crunch.
This week the Bank’s monetary

Don’t print more money just yet, King tells Bank

policy committee meets and could

announce more measures to prop up

the economy. Interest rates have

already been cut to a record low of

0.1 per cent and quantitative easing has

been expanded to £745 billion.

“In the longer run, the argument for

any quantitative easing is, ‘Do we need

to expand the money supply in order to

boost economic recovery?’ ” Lord King

said on Econ Films’ CoronaNomics

show. “I don’t think that’s an issue that’s

been relevant for the last few months

because the government’s been trying

to shut down the economy. It doesn’t

want it to expand. Now we’re beginning

to recover, we’re slowly moving into a

period in which maybe the question of

monetary and fiscal stimulus is

relevant.

“But at this stage I still think it’s

premature to argue that a big monetary

stimulus is appropriate because we

still have significant aspects of a shut-

down.”

Under quantitative easing, the Bank

creates new money to buy assets —

mainly government bonds — to pump

cash into the economy. It announced

an extra £200 billion of asset purchases

in March and a further £100 billion in

June.

“I think we have to wait until we get

to a point where it looks as if the

economy’s recovered to within a few

percentage points of the level which it

had reached at the very end of last year

before really feeling that we can end the

temporary support schemes and think

in terms of conventional monetary and

fiscal stimulus,” Lord King said. “I still

think that is some way off.”

He also said that the pandemic was a

“much, much bigger thing than Brexit”

for the economy.

Ben Martin Senior City Correspondent

Hammerson

seeks £500m

from investors

Ben Martin

One of Britain’s biggest shopping

centre owners has tried to reassure

investors that the turmoil in the sector

is showing signs of improvement as it

prepares to tap them for cash.

Hammerson is expected to unveil a

rights issue for at least £500 million

when it announces first-half results on

Thursday — more than its £492 million

market capitalisation.

The owner of the Bullring shopping

centre in Birmingham and of Brent

Cross in northwest London said that it

was “considering a possible equity-raise

by way of a rights issue”. It also con-

firmed that it was in talks to sell its

50 per cent stake in Via Outlets, which

owns sites in Europe, to APG, the

Dutch pension fund that owns the

other half.

Hammerson said that the picture

across its sites was starting to brighten,

after disclosing last month that it had

collected only 16 per cent of rents due

in Britain for the third quarter. “Follow-

ing the reopening of its flagship desti-

nations across Europe, footfall and

sales continue to improve and [third-

quarter] rent collection in the UK

(excluding monthly payments and

deferrals) has increased to over 30 per

cent,” it said.

The company’s share price has been

hit hard by the rise in online shopping

and now Covid-19. Shares that were

changing hands for 309½p at the start

of the year closed at 64¼p on Friday.

The national lockdown that was

introduced to contain the coronavirus

pandemic has caused havoc in the

property sector. Intu, another shopping

centre owner, fell into administration

in June after the economic downturn

overwhelmed the indebted group.

ALAMY; VENETIA MENZIES FOR THE TIMES

T

he sale of a

£400 million

stake in inter-

city express

rolling stock

running into and out of

London King’s Cross on

the main line to and

from Edinburgh is set

for the green signal,

with bids due to arrive

today for the train

ownership and

maintenance contracts

(Robert Lea writes).

The 30 per cent stake

in the 65-strong fleet of

Azuma trains, operated

by London North

Eastern Railway, is

being sold by John

Laing, the listed

infrastructure

investment group that

was the original investor

with Hitachi, which

assembled the trains at

its factory in

Co Durham.

Favourites to win the

battle to get on board

are Equitix and

Dalmore, the London-

based infrastructure

funds that are already

closely linked with the

transaction. Equitix and

Dalmore together were

the buyer of the John

Laing Infrastructure

Fund, John Laing’s sister

businesss, through

which they acquired

their co-ownership of

the 57 inter-city express

trains made by Hitachi

for the Great Western

main line into and out of

London Paddington.

At £5.7 billion, the

inter-city express trains

are Britain’s largest-ever

investment in rolling

stock, providing 866

modern carriage

replacements for the

aged Intercity 125 and

225 fleets. The

programmes have not

been without their

problems, with initial

breakdowns and track

and signalling

compatibility issues. It is

understood that other

bidders for the stake in

Azuma trains, which

pays long-term income

in return for guaranteed

fleet availability, include

GLIL, an investor on

behalf of London and

northwest England

pension funds, and

Brookfield, a Canadian

fund.

Bidders on platform

for rolling stock stake

London North Eastern Railway operates services on the east coast main line between King’s Cross station in central London and Edinburgh