CORPORATE FAILURE AND THE IMPACT ON TRADE CREDIT AND POLITICAL RISK POLICIES David Chadwick 2 July 2018

A. Trade Credit Trade Credit Insurance (“TCI”) protects firms (suppliers) against the risk of not being paid for goods or services already provided following insolvency, protracted default or political upheaval. TCI is a huge market (covering turnover of £315bn of trade in 2016 compared to £101bn in 1995); 300% increase in risk; 45% increase in premium within the same time frame; premium down/risk up. Credit is a major aid to trade. Of every 5 Euros of short term credit given to firms; 1 Euro comes from banks; 4 comes from the supplier. Therefore, corporate failure hits suppliers very hard and consequently the providers of TCI very hard too.

Recent corporate failures that have impacted TCI hard HMV Game Woolworths Toys R Us Palmer and Harvey (£100m to TCI) Monarch Carillion – collapsed owing money to 25,000 – 30,000 separate businesses (£31m+ to TCI)

It has been said recently that claims on TCI across the UK sector running at £4m per week. Highest since 2009. 44 new claims per day in Q1 2018. Premium rises predicted but what about over capacity? Corporate failure is a problem for providers of TCI, but also an opportunity. Now more than ever, TCI is needed. And for lawyers …? Many claims are very straightforward; policies are broad Issues we have seen …? Fraud by Insured (fictitious transactions … rare) Counter selection of buyers against TCI Under declaration of turnover Enforceability issues Failure to follow credit procedures

B. Political Risk Just a few short comments In the credit context, this ‘political risk’ is as much to do with ‘country credit’ risk as opposed to corporate credit risk Many emerging economies, either via direct state acquisition, para statals or state controlled corporates, purchase goods on credit terms or pre finance the sale of their commodity. Some countries abilities to pay debt is heavily (overly?) reliant on global price of oil that they “sit on” as their major “cash crop” E.g. Angola, Republic of Congo, Ghana, Colombia, Ecuador, Mexico, Venezuela etc

Oil prices have fluctuated dramatically over the last 10 years 2008 - @ $140 a barrel 2009 - @ $35 a barrel 2011-2014 – between $125 - $135 a barrel 2015-2017 between $25 - $50 a barrel Now … climbing again This wide (in terms of time) and steep (in terms of price) fluctuation has created ‘havoc’ with certain emerging economies ability to pay debt This has lead to emerging country/company credit failure So, not true corporate failure but something very similar