Increasing Corporate Collapses, Should Covid Take the Blame?

It has been more than two years since the first Covid outbreak, and we have witnessed a great pileup of companies furloughing staff or even going out of business completely. Many believe that the ongoing economic recession chalks up to the virus and consequent lockdowns. Is Covid the reason to blame? Let's take a look at some of the most noteworthy bankruptcy / liquidation / administration cases of financial companies.

There are differences in between bankruptcy, liquidation and administration

- Administration

When a company's directors determine that the it is in a state of bankruptcy or will become insolvent in the near future, the company is said to have gone into administration.

In this event, a registered liquidator, externally appointed, will oversee the process. The length of the administration is determined by how long the business need to assess its financial destiny.

- Liquidation

Liquidation could be either voluntary or involuntary. Assets are sold in both cases, and the proceeds are utilized to reimburse creditors in order to pay off as much of the existing debt as possible.

After the assets are dissolved, the company is fully closed. This indicates that whether the company is liquidated freely or not, it ends the same by ceasing to exist.

- Bankruptcy

Insolvency is the most common cause of bankruptcy, although organizations that go into liquidation might do so for a variety of reasons. A solvent corporation may opt to liquidate for a variety of reasons, including the decision of its members to cease operations. Both liquidations and bankruptcy require managing assets and paying debts when possible, and both are last-resort measures.

​Bó, Banking, based in UK

Wound down in April, 2020

After only six months of operation, Bó, the Royal Bank of Scotland's independent flanker brand bank, closed its digital doors.

Bó had formally started at the end of November 2019, but by the beginning of 2020, it had already lost its CEO, Mark Bailie, and been replaced by Marieke Flament, the CEO of RBS' other flanker brand, SME-focused Mettle.

After a Strong Customer Authentication incident in February, it was forced to replace all of its customer cards.

Wirecard​, Fintech (payment), based in Germany

Filed for bankruptcy in June, 2020

Founded in 1999, Wirecard started off processing payments for gambling and pornographic websites before becoming a fintech darling and a component of Germany's blue chip DAX index.

Wirecard filed for bankruptcy in June 2020, alleging "over-indebtedness." The firm's administration terminated the contracts of its chief executive officer and two other management in August 2020. The German parliament said in September 2020 that it will convene an inquiry to comprehensively explore why the government failed to prevent corporate fraud.

According to some, Wirecard was the greatest fintech disaster of 2020. The repercussions were serious right away. Just 24 hours after its German parent firm filed for insolvency, the FCA ordered Wirecard's UK subsidiary to cease all operations. Customers were unable to access funds at a number of UK fintechs, including Revolut, Pockit, Soldo, Anna Money, Holvi, and Curve, due to the outage, which lasted several days.

Monedo, Fintech (alternative lender), based in Germany

Filed for bankruptcy in September, 2020

Monedo, originally Kreditech, a German alternative lender, filed for bankruptcy in September 2020. It got into difficulties because various European governments permitted debtors to postpone loan repayments during the coronavirus outbreak, according to reports.

The new legislation enacted by the governments of Spain and Poland, two of the major fintech marketplaces, affected Monedo the hardest.

The lender, which was backed by JC Flowers and Peter Thiel, relaunched in March 2020 after a two-year shift in strategy to offer near-prime consumer loans. It employed around 350 employees and provided financial services in India, Poland, Russia, and Spain.

Dolfin Financial​, Wealth Management, based in UK

Entered special administration in June, 2021

After the UK regulator put limits on its activities, the UK-based and FCA-authorized wealth management business went into special administration. The special administrator has been named Smith & Williamson. Dolfin had 120 million pounds in customer funds and 1.3 billion pounds in custodial assets on its records at the time of its demise.

PagoFX​, Foreign Exchange, based in UK

Shut down in November, 2021

Santander's PagoFX, which is part of the fintech PagoNXT, announced on November 30, 2021 that it would stop offering international money transfers in the United Kingdom, Spain, and Belgium. Yet another example of a flanker brand from an incumbent bank trying to cash in on a fintech trend and failing.

Vector Wealth, Wealth Management, based in UK

Applied to be placed into administration in April, 2022

Here's another FCA-authorized firm that collapsed. On 11 April 2022, the director of Vector Wealth Ltd made an application to the High Court of Justice to seek an order that the Company be placed into administration. On 22 April 2022, James Alexander Snowdon and Michael Colin John Sanders, both of MHA MacIntyre Hudson LLP, were appointed Joint Administrators of Vector Wealth Ltd.

Other "honorable" mentions

Halifax Investment Services Pty Ltd (Halifax) was a financial services licensee based in Sydney Australia. It was placed into liquidation on March 20, 2019. Fazzaco has covered heavily on the liquidation of this company, and this is the link to the latest update: Halifax Liquidator KPMG Releases Investor Distribution Update​.

After the FCA intervened and identified "serious concerns" about the way in which the business was operating, SVS Securities, a retail-focused broker and wealth manager with a modest number of corporate clients, filed for liquidation in August 2019. Beaufort Securities had met the same fate seventeen months before. SVS was simply the next.

After a slew of setbacks, Growth Street, an alternative lender, decided to shut business in July 2020.

Orca Money, one of the first retail-focused P2P lending aggregators, closed its doors in April 2020 after a failed move to institutional investors.

In January 2021, Scalable Capital stated that it will discontinue its UK wealth business to focus on its European markets.

Conclusion

Despite the pandemic's disruption in recent years, financial businesses, particularly fintech firms, have been on a full-throttle ride for a number of years, with values continuing to surge. Of course, things don't always go as planned in the startup sector.

This was not only due to the epidemic in most cases, but the worst social and economic shock in a generation undoubtedly had a role.