North East business owners should not be lulled into a false sense of security by a big quarterly fall in corporate insolvency numbers, according to the North East chair of insolvency and restructuring trade body R3.
Alexandra Withers was speaking after the publication of the official corporate insolvency statistics for England and Wales for the second quarter of 2020, which showed a 23% drop compared to the first three months of the year.
The overall number of company insolvencies decreased from 3,848 in Q1 2020 to 2,974 in Q2, while it was 33% lower than the figure for April, May and June last year (4,425).
But Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, believes the full impact of the pandemic has not yet begun to be properly felt.
She says: “Despite having had the lowest quarter for corporate insolvencies since 2010, now is definitely not the time for business owners to be lulled into a false sense of security that everything’s going to turn out fine.
“We have not seen the full impact of COVID-19 on businesses because of the lifeline the Government’s support has provided, but we do have an idea of the impact of the pandemic on the economy, and we know it has been disastrous.
“The drop in corporate insolvencies is driven by a fall in Compulsory Liquidations and Creditors’ Voluntary Liquidations which we think has been influenced by the range of government support available to businesses, the issues around holding court hearings at the start of the pandemic, and the ban on winding-up petitions.
“It’s worth noting that the next set of quarterly insolvency statistics will cover the immediate period after both June’s Quarter Day, the point at which quarterly commercial property rental payments should be paid, and the date for when deferred HMRC debts are due.
“These two deadlines will have posed a challenge to businesses which have not been trading as they are not likely to have the cash at hand to cover this.
“Our members are telling us that the insolvencies which took place at the start of lockdown were mainly those where the companies involved were already in some form of financial trouble.
“It may not be long before this changes, however, and companies which would be viable under normal circumstances begin to seek support from an insolvency and restructuring professional.”
Alexandra Withers is also advising business owners to make sure they have the resources in place to fulfil their obligations to customers and to not risk creating problems for themselves by trying to do too much too quickly.
She continues: “As more businesses start to reopen, directors should beware the risk of overtrading – taking on a large volume of new orders without the necessary working capital to support their operations and production.
“Those who do not keep a very close eye on whether they have the financial overhead to fulfil the rush of orders they receive could soon find themselves struggling to stay afloat.
“Anyone who is worried about their business’s financial health should seek advice from a qualified professional as soon as they start to see signs that it’s struggling, so that they give themselves the best chance of turning their situation – and their business – around.”