Alexandra Withers, North East chair of insolvency and restructuring trade body R3 and associate solicitor in the insolvency department of Short Richardson & Forth Solicitors, says: “The corporate insolvency figures show the Government COVID-19 support measures appear to be helping many businesses that may otherwise have struggled during this period of economic disruption.
This, in part, explains the drop in the number of businesses entering an insolvency process. There are also operational and logistical factors – such as the partial closing of the courts at the end of March – which also continue to play a role.
“While these statistics provide another snapshot of how the pandemic is affecting businesses, they still do not provide a full account of the impact it is having on levels of insolvencies.
“Indicators over recent months suggest that an increase in insolvency numbers is coming, but this has not yet materialised. We are potentially in the period of calm before the storm, as indicated by the unprecedented 20.4% fall in GDP in April, as published today.
“For the first couple of months of lockdown, the insolvencies which took place were mainly those of companies which were already in financial trouble. It may not be long before this changes, however, and insolvencies of companies which would be viable under normal circumstances are initiated due to the lockdown and the effects of the pandemic.
“It’s clear that we’re set for a period of economic turbulence. In addition to today’s shocking GDP figures, research also shows consumer spending and consumer confidence – which are indications of both the health of the nation’s personal finances and of how businesses will fare going forward – fell significantly between March and April, and many businesses will face a rocky road until this improves. The rent quarter day, which occurs in the fourth week of June, will also put extra pressure on many businesses.
“It’s also worth noting that job vacancies were also significantly lower in April than in March, according to the Government’s own figures, and businesses are not optimistic about their abilities to resume hiring again in the short term. This is bad news for anyone whose finances have taken a hit, and indicates that the return to pre-pandemic economic conditions may take a long time.
“The longer lockdown continues, the more damage the economy will sustain. Yet easing restrictions on trading prematurely could lead to a wave of new infections and an even greater danger to business and personal finances. The Government has a difficult job in balancing these considerations as it plots a path forward.
“Given the continuing uncertainty around how the country returns to ‘business as usual’, anyone worried about their personal or business finances should seek advice as soon as possible from a professional and reputable source. The earlier they do, the wider range of potential solutions they’ll have open to them, and the more considered a decision they’ll be able to make about their next move.”