VAT deferral: Firms will pay in full from July 1st
VAT deferral: Firms will pay in full from July 1st
25th June 2020
Five tips to reduce spending after lockdown
Five tips to reduce spending after lockdown
3rd August 2020
Show all

Rise in corporate insolvencies ‘inevitable’

A significant majority of restructuring and insolvency professionals expect the number of company insolvencies to increase, according to a survey conducted by insolvency trade body R3.

A whopping 94% of corporate insolvency and restructuring experts polled by the organisation said that they expected corporate insolvency numbers to increase over the next year, with more than half (56%) saying they expected numbers to increase significantly relative to 2019.

The same proportion (56%) of respondents said that they expected the company insolvency bump to occur in the final three months of the year when key government support packages come to an end. Just over a quarter (26%) said that they thought the spike would occur in the first three months of 2021.

Informed by their experiences with clients, R3 members said that rent payments or arrears (62%) were the biggest financial concern for companies, followed by trade debts (50%), tax payments or arrears (48%) and wage payments (36%).

Unsurprisingly, sectors that rely on face-to-face interactions were judged to be the most vulnerable to economic disruption, with 79% naming pubs, bars and restaurants and 64% saying tourism operators.

Tom Fox, Licensed Insolvency Practitioner at Umbrella Insolvency, said: “A rise in corporate insolvencies now seems inevitable. There are some signs that the economy could recover quickly, but the financial damage could already be too much for some businesses.

“Government support packages like the job scheme have been an effective shield for some companies, but if they aren’t  on a strong footing by the time these schemes come to an end, then I worry about their long term future.”

The government’s Coronavirus Job Retention Scheme was described as ‘very effective’ by 71% of survey respondents, while 46% praised the tax payments deferral scheme and 35% said the business rates holiday had done its job.

While a significant majority of specialists said that they expected corporate insolvencies to increase, the current demand picture was mixed. While 38% of respondents said that demand for corporate insolvency services had increased recently, 45% said that it had gone down.

Tom Fox continued: “A suspension on winding up petitions and statutory demand issuance has probably reduced the number of company insolvencies over the last few months. The government will want to avoid ‘opening the floodgates’ when this suspension is lifted after 30 September.

“Other crunch points could come when the furlough scheme closes at the end of October or at the end of the first quarter in 2021, when repayment of deferred VAT is set to recommence.

“Any businesses that think they might struggle for the rest of 2020 and into 2021 should seek expert advice as soon as possible. This will help them keep the fullest range of options available and could result in a much better outcome.”

For advice and information about company insolvency services, speak to a member of the team today. Call: 0800 611 8888.