BIIA member Rubix Data Sciences Pvt. Ltd.  has monitored the extensions of moratoriums on insolvencies and other disruptive government interventions as a result of COVID-19.   An updated version of the data was recently presented in a webinar of  the SME Finance Forum.

As a response to Covid, Governments have announced measures to help businesses (particularly SMEs) including:

  • Moratorium on Loan Repayments
  • Moratorium on Insolvency
  • Extension in Filing Requirements for Company Registries, Tax Authorities and for holding shareholder meetings
  • An unintended consequence is the adverse impact on the timeliness and accuracy of credit data that credit grantors such as banks, lenders and credit insurers can access. Credit scores will be impacted down the line, dampening credit flow to businesses, especially SMEs
  • Rubix has updated the Covid Moratorium Measures announced by 13 countries to assess their continued impact on the business and credit information eco-system:
    • Argentina, Australia, China, Germany, India, Kenya, Malaysia, New Zealand, Singapore, United Arab Emirates, UK, USA and Vietnam

Extension for Filing Data with Company Registry and holding Virtual Shareholder Meetings:

  • Company Registries have announced filing extensions ranging from 1 month (Australia, China) to 3 months from due date  (UK, Malaysia, India). In most countries, the extensions are valid till December 31, 2020.
  • Most countries have permitted virtual Shareholder Meetings till December 31, 2020, with extensions if necessary. For eg., Germany has stated that it may extend this permission by a year, if necessary.

Impact on Credit Information Companies and Credit Grantors:  

    • A 3 month delay in the filing cycle for the previous financial year results in out-of-date financial information for credit decisioning.  For eg., in India, the latest financials available on most companies are nearly 20 months old due to this relaxation.
    • Filing Backlog and Pile-Ups at Registries are causing digital service failures making data harder to access.
    • Delayed availability of non-financial information including Directors/ ownership changes, financial hypothecation information (charge data) etc.

Loan Repayment Deferrals and Moratoriums:

  • Many countries have permitted temporary deferrals of loan repayments, especially by SMEs, for periods ranging from 6 months (Australia, Malaysia, New Zealand) to 9 months (Singapore)
  • Other countries require Banks to provide customized loan relief measures on a need basis eg., Vietnam
  • Some countries have launched specific loan schemes to inject liquidity / meet working capital requirements of businesses eg., Coronavirus Business Interruption Loan Scheme in UK and Economic Injury Disaster Loan (EIDL) in USA

Impact on Credit Information Companies and Credit Grantors:  

    • Defaults / delays in repayments are a critical parameter in credit scoring. There is a risk that these repayment deferrals may be misused by businesses that were facing financial difficulties even prior to Covid. This will make it difficult to identify businesses where financial problems may not necessarily be on account of Covid.
    • Similarly, SMEs may opt for loans based on relaxed norms during Covid but may face repayment difficulties in the future.
    • Credit assessment and monitoring are likely to remain a challenge for the next 12 -24 months.

Temporary Modification of Insolvency Norms:

To help businesses survive during Covid, most countries have implemented temporary relaxations in their Insolvency / Bankruptcy laws.  Of the 13 countries studied by us, only 3 countries did not announce relaxations of bankruptcy laws – Vietnam, UAE and Kenya

Some of these relaxations in Insolvency Norms are:

  • Increasing the minimum financial threshold for creditors issuing a statutory demand on a company
  • Increasing the timeframe for a company to respond to a statutory demand
  • Temporary relief for directors from any personal liability for trading while insolvent
  • Businesses to get protection while they talk to their creditors i.e., during this period most creditors cannot take legal action to enforce their debts.

Impact on Credit Grantors:  

    • Since creditors will be unable to enforce their claims, credit grantors may choose to limit their credit exposure, especially to SMEs (including trade credit)
    • Delays in collections could strain already tight liquidity situations of credit grantors i.e., higher NPAs
    • The ‘Bankruptcy Can’ will be kicked down the road to 2021


Link to Rubix Covid Moratorium Update:

About:  Rubix Data Sciences Pvt. Ltd.  helps you to take prudent credit risks, build a robust supply chain and monitor compliance for your business partners in India and around the world.  Set up by highly experienced Risk Professionals who have worked extensively in the credit, legal and supply chain information domains, Rubix has been recognized as part of the ‘Start-up India’ scheme by the Department of Industrial Policy & Promotion (DIPP), Government of India, in 2018. The Rubix platform and its suite of reports, products and services are based on its extensive database of structured and unstructured data aggregated from over 100+ sources, customized predictive analytics and proprietary technology. Through its solutions, Rubix provides deep insights to Credit, Risk, Supply Chain and Compliance professionals, facilitating quicker and more effective  decision-making.