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Freshfields Risk & Compliance

| 3 minutes read

Asia: what’s next for disputes emerging from the COVID-19 crisis and the recent developments in key areas

As COVID-19 spread across the globe like wild fire, many of its effects – including an economic downturn and emerging disputes risks – are being felt across markets.

In our recent report (PDF), we explore the key litigation risks emerging from the COVID-19 crisis in the US, Europe, the Middle East and Asia.

In this post, we highlight further some of the risk areas, in particular in insolvency/bankruptcy, contractual claims and M&A disputes, as they might transpire in Asia.


We are already witnessing an increase in insolvencies and bankruptcy actions in Asia (although not as much as in other jurisdictions), and we expect to see a rise over the next 12 to 18 months and possibly beyond.

Corporate debt in the region has been spurred on by years of low interest rates, which caused debt to double to $32tn between the 2008 global financial crisis and 2019. This is now resulting in defaults on loans across industries.

In China, as we see continuing attempts to shift supply chains out of China to other countries in the region, the South China Morning Post reports that approximately 460,000 Chinese firms shut down amid fallout from the COVID-19 crisis during the first quarter of 2020, with a 29 per cent drop in the number of new firms registered and established between January and March 2020 compared to the same period last year.

In terms of cross-border insolvency, overseas creditors of PRC companies might want to take note of the recent findings by the Hong Kong and New York courts that foreign creditors could not enforce bankruptcy claims against PRC companies’ overseas assets, but instead would have to resort to onshore insolvency proceedings.

In light of the economic impact brought about by the social unrest followed by the COVID-19 crisis, the Hong Kong government has announced plans for a 'corporate rescue bill'. The bill, which was first mooted in 1996, will consist of a Chapter 11-style provision to shield debt-stricken companies from hostile acts, by giving debtors a six-month moratorium designed to allow them to reorganise their finances and rehabilitate.

Similar to measures taken by governments around the world, the Singapore and India governments have acted in an attempt to ease the number of insolvency/bankruptcy filings by increasing the monetary threshold required to petition for an insolvency, and extending the time period for seeking to satisfy or set aside a statutory demand. In Singapore, directors would also be offered welcome reprieve from liabilities over transactions executed and debts incurred while the business is insolvent.

Contractual claims 

With the rapid increase in force majeure declarations, a rise in the number of disputes in the region could be expected (although not yet having materialised). We have observed in many jurisdictions, however, that where businesses are both receiving and issuing force majeure notices, counterparties are making attempts to amicably resolve contractual performance issues rather than turning to arbitration or litigation.

In China, the government has issued thousands of 'certificates' declaring that failures of performance are excused by force majeure. The value of these certificates outside the PRC courts however is likely to be limited; they may provide strong evidence for a force majeure defence, but are unlikely to be determinative in themselves. 

Other jurisdictions, such as Singapore, have passed new rules that aim to offer temporary relief to businesses and individuals who are not able to fulfill their contractual obligations due to COVID-19.

Where obligations within a supply chain are governed by law from different jurisdictions, disputes are more likely, since different legal systems might afford different treatments towards doctrines such as force majeure, frustration, and change in circumstances. 

Parties would be well advised to rethink their contract strategy and to re-examine various contractual clauses in order to safeguard their positions in future disputes arising from the COVID-19 crisis.

M&A disputes 

With respect to M&A disputes, we anticipate Asia will see similar trends as we are seeing in the US and Europe, with possible disputes concerning parties’ satisfaction of the closing conditions.

On the broader M&A climate in Asia, we have witnessed a drop in M&A activities in the region in Q1 2020, with Japan being the only market that has seen a year-on-year growth for the same period. However, with COVID-19 and the postponement of the Tokyo Olympics, it remains to be seen how the country’s economy and M&A activities might be affected.

On the other hand, we expect to see an increase in the distressed M&A market, with cash-rich investors looking for opportunistic deals as COVID-19 is gradually brought under control in Asia. 

Also, as parties seek to include specific terms in their deals that address COVID-19-related risks, it remains to be seen whether another wave of disputes might arise out of such new contractual language.


To put all of this in perspective, Freshfields has asked its attorneys, and its clients, the simple question: in terms of disputes, what comes next? Our report – which can be downloaded here (PDF) – summarises the key disputes trends we’re seeing around the world.

See here for related posts in this series.


litigation, covid-19, asia-pacific, arbitration