A significant rise in the number of corporate insolvencies is inevitable and most likely to arrive before the end of the year, according to a survey of members of the business rescue profession.
An overwhelming majority (93.7%) of corporate insolvency and restructuring specialists who responded to a member survey by insolvency and restructuring trade body R3 said they expected corporate insolvency numbers to increase over the next year, with over half (56.1%) of those surveyed expecting the figure to be significantly higher than in 2019.
A similar proportion (56%) of those who expect numbers to rise significantly think the increase will happen in the final three months of this year, while just over a quarter (26.3%) expect it to occur in the first three months of 2021.
Rent payments or arrears (61.7%) were identified as the main likely trigger for companies seeking corporate insolvency advice over the next 12 months, followed by trade debts (49.7%), tax payments or arrears (48.1%), and wage payments (35.5%).
Fewer than half (42.9%) of survey respondents told R3 that they were currently busier than normal, with almost the same number (41.3%) saying their workload was lighter than usual and 15.3% saying their workload was unchanged.
Alexandra Withers, North East chair of R3 and an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, says: “Despite the lockdown, the economic turmoil and the fall in GDP of more than 20% in April, Government figures showed that corporate insolvencies during the second quarter of the year actually showed a month-on-month decrease.
“This is in no small part due to the Government’s support measures, which have helped a number of businesses that would otherwise have struggled as a result of the pandemic.
“Our members also told us that, during April, May and June, the enquiries they received were mainly around advice on companies’ eligibility for the state-provided relief packages, rather than formal insolvency support.”
The government’s Job Retention Scheme was described as ‘very effective’ by seven in ten (70.5%) of those surveyed, with nearly half (45.9%) and more than a third (35%) of them respectively saying tax payment deferrals and business rates holidays had been similarly effective.
Alexandra Withers continues: “The Job Retention Scheme has obviously lifted much of the usual obligation on participating businesses to pay their staff, while tax payment deferrals also help manage a big expense and a common trigger for corporate insolvencies.
“As a result, any income businesses receive during the pandemic can go towards supporting their future activities and mean that supply chains can continue to function in some way during the pandemic. One business’s insolvency can have a ‘domino effect’ on its supply chain, and the Government measures have helped to reduce the risk of contagion spreading from one company to others to which it is linked.
“It’s clear from our survey that it’s a question of when, not if, corporate insolvency numbers increase, as the support available to businesses has deferred rather than deterred the rise in corporate insolvencies that you would expect to see in an economic climate like this.
“We would urge anyone who is concerned about the future of their business to seek advice as early as possible. Doing so will give them more options about their next step and allow them to make a more considered decision about how they move forward.”