Member Article

Life support ends for failing pandemic businesses

THE country is emerging from two years of COVID, the upheaval of lockdown is easing…and HMRC is back on the case.

Deborah Lockwood, partner in Sheffield business turnaround and insolvency practice Graywoods, says that the past two years of government support schemes and loans for companies in crisis have been like life support for failing businesses.

But now that life support is being switched off and that means that businesses could still face the crisis they had hoped to avoid.

In 2019, the year before the pandemic took hold, HMRC was issuing more than 200 monthly wind up petitions on average against failing organisations.

During 2020, though, with the country in lockdown for many months, that figure fell to just one petition per month and in 2021 only three wind up petitions were being sought per month.

Deborah says that as government support schemes and loans come to an end and HMRC returns to full activity, the number of wind up petitions will certainly rise once again.

“There were government restrictions on wind up petitions during the pandemic and it has to be said too that HMRC wanted to be seen to be doing everything they could to support businesses through a very difficult time,” Deborah said.

“At this point, though, when the number of wind up petitions almost disappears, we have to look to the future.

“There were a number of business that would have been in arrears pre-pandemic and as we move forward, many will still be in arrears and many more will actually have increased levels of debt because of the loans they took out.

“The question must be asked - if these businesses were in arrears in 2019 and have potentially increased their indebtedness to HMRC, how are they going to repay that debt now?”

Deborah explained that government support had been welcomed and in some cases would actually have helped to save some previously struggling businesses and given them the breathing space to re-evaluate and restructure ready for the future.

“People need to be aware, though, that the number of wind up petitions will increase, as will the number of insolvencies,” she said.

“This is actually a time for recalibration and adjustment, particularly as government schemes like the easing of rent regulations to help struggling businesses are now ending.

“It’s been a little like struggling businesses have been on life support for two years but now that life support is being switched off and I think that the second quarter of the financial year will be when we really begin to see that inevitable rise in the number of wind up petitions.”

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