Partner Article

Insolvency statistics down - but we’re not out of the woods yet

NEWS that the number of company insolvencies in England and Wales is falling shouldn’t be taken as a sign that the economy has successfully survived the COVID-19 storm says a leading insolvency expert.

Latest statistics from the government’s Insolvency Service show that insolvencies fell in the second period of this year by nearly a quarter when compared with the first part of the year.

There were 2,974 company insolvencies in quarter two of 2020, with the overall number of company insolvencies decreasing by 23 per cent, compared with the first period for 2020, and by 33 per cent when compared with the same quarter in the previous year.

The company liquidation rate also fell in the 12 months ending with the second quarter of 2020, standing at 36.9 per 10,000 active companies in England and Wales, as compared to 40.7 per 10,000 active companies in the previous year.

But Adrian Graham, partner in Sheffield business turnaround and insolvency practice Graywoods explained the reduction was likely to be at least partly driven by Government measures put in place in response to the coronavirus pandemic.

“Enhanced Government financial support for companies and individuals is bound to have had an impact and given organisations that were struggling before the pandemic hit just a bit of extra breathing space,” he said.

“It helps too that financial service regulators have advised that individuals and businesses in financial difficulty should be treated with forbearance and due consideration.

“In addition, reduced operational running of the courts and reduced HMRC enforcement activity since UK lockdown was applied has again given companies time to take stock.”

Adrian also said that schemes like Eat Out to Help Out had provided a short term safety net but would not be able to provide stability into the future in the always volatile hospitality sector.

“One thing we can be sure of is that the pandemic has had a major impact in the way that the public approach eating out and visiting bars,” he said.

“And the whole retail industry too is going to have to come to terms with massively shifting patterns of behaviour, a move that is already having a major impact on such well established High Street brands as Marks & Spencer, Debenhams and Laura Ashley.

“With autumn now fast approaching, we are entering what would traditionally be seen as retail’s busiest period on the run up to Christmas, but 2020 is not like any other year in living memory.”

One of the biggest problems facing every company, Adrian added, would be one of cash flow.

“It’s best to check now exactly where you stand financially and use this time to think about long term plans,” he said.

“Now is the time for practicality, not pride and if support mechanisms are in place then don’t be afraid to explore them and tap into them.”

This was posted in Bdaily's Members' News section by John Highfield .