Updated: Jul 31, 2020
Measures to fight the global pandemic have included shutting down economies world wide, which has meant that businesses globally were forced to close.
The knock on effects have been devastating with corporate debt piling up, and more than 6000 chapter 11 bankruptcies filed in the US alone, companies large and small are succumbing to the effects of the coronavirus. They include household names like Hertz, JC Penny and McDermott to name a few.
A large portion of good-size companies that go into bankruptcy do so in order to try to restructure themselves, working out payment agreements for their debts so they can stay afloat. However, if a plan can’t be worked out or isn’t successful then they can be liquidated instead. Fixed assets such as equipment and property are sold off in the first instance to pay debts after which the company along with its employees disappear.
A snapshot of some of the companies who have filed for bankruptcy in recent weeks:
The worst industry sector hit was the hospitality industry.
“We are seeing an acceleration in bankruptcies that is unprecedented,” said James Hammond, CEO of New Generation Research, which runs BankruptcyData. For 2020, he says, “I’m pretty confident we will see more bankruptcies than in any businessperson’s lifetime.” Ranked by assets alone, says Hammond, the magnitude of bankruptcies this year has already surpassed that of 2008. And that’s not including what could happen when the government’s Paycheck Protection Program, which aims to keep small businesses up and running with loans that can be converted to grants if certain terms are met, runs out.
When companies with a global footprint file for bankruptcy, the effects are not localized, they echo around the world affecting every stakeholder.
Bankruptcy either leads to restructuring or liquidation with both of those scenarios resulting in unemployment, without the certainty of gaining successful employment within any given timeframe. Investors globally should take heed of this and look at their portfolios to establish if they have been designed to carry them through the leaner times.
Typically a portfolio will be designed solely for growth to provide wealth in the future but what about today?
If a portfolio is geared towards growth as the primary goal, it might be worth considering utilizing a portion of it to generate income.
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