Despite the progress the economy has made to recovery since 2008, insolvency continues to represent a significant portion of work for financial services lawyers, particularly in the private funds sector.
In fact, 63% of respondents believed that compared to last year there will be as many, if not more, fund blow-ups in the coming 12 months. When asked which issues insolvency lawyers believed would drive insolvency work in the year ahead, the three most cited were regulatory action, complex restructuring and failure of fiduciary responsibility.
While the first two were expected, failure of fiduciary duty, which was noted by 44% of respondents, was surprising. This response indicates that many lawyers expect impropriety and lapses in governance to bring funds and firms into bankruptcy or liquidation. Issues in corporate governance have received a great deal of attention recently, as many industry bodies are calling for a tightening of such functions.
For example, the Directors Registration and Licensing Law, 2014 introduced by the Cayman Islands Monetary Authority (CIMA) was undertaken to increase accountability in directorship governance of regulated entities, namely mutual funds.
That such a high portion of lawyers anticipate insolvency work to be driven by these issues suggests that governance, particularly around fiduciary obligations, will come under close regulatory scrutiny. Subsequent disputes and litigation on the topic may in turn compel a higher incidence of resulting wind-up petitions and declarations of insolvency.