‘Sting In The Tail’ Warning Despite Significant Year-On-Year Fall In Corporate Insolvencies

A ‘sting in the tail’ of the official annual corporate insolvency figures for 2020 could indicate that North East businesses can expect to face challenges in the year to come.

That’s the view of Alexandra Withers, North East chair of insolvency and restructuring trade body R3, after the Insolvency Service’s official figures for 2020 showed a 27.1% year-on-year fall in the number of corporate insolvencies across England and Wales, from 17,224 in 2019 to 12,557 last year.

But despite the extension of government support mechanisms such as the furlough scheme, the final quarter of 2020 saw a 16.9% increase in the underlying number of corporate insolvencies from the previous quarter.

And with these support mechanisms scheduled to be removed early this year, Alexandra Withers is expecting a further surge in corporate insolvencies both within the North East and across the UK.

She says: “The most significant factors behind what is the lowest total figure for corporate insolvencies for more than a decade are clearly the government support measures introduced for businesses since the onset of the pandemic and the suspension of creditors’ ability to take action against many corporate debtors.

“These steps have only deferred, rather than resolved the full effects of the pandemic being reflected in corporate insolvency levels, and the sting in the tail of 2020’s official figures suggest that, even though these measures are still in place, the impact of covid-19 is now starting to be felt.

“While it’s worth noting that the figures in the final quarter were still significantly lower than they were in the same quarter in 2019, it’s still clearly a question of when, not if, levels of corporate insolvency increase this year, and the timing will depend on when – and how – the Government support ends.”

The furlough scheme had been due to end in December, but will now run until at least the end of April, while the government’s loan schemes are currently due to be available until the end of March.

Alexandra Withers, who is also an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, continues: “The pandemic and the ensuing series of lockdowns have obviously taken a major toll on the economy and there’s no certainty as yet over when we will even begin to emerge from the latest set of restrictions.

“We have seen many well-known names enter an insolvency process or announce restructurings in recent months in an attempt to mitigate the effects of the pandemic – it’s fair to expect that more will follow, and that the next 12 months will be similarly challenging for many regional businesses and sectors.

“Alongside the economic impact of the pandemic, the change in our relationship with the EU is already affecting a number of regional firms as new arrangements come into effect – and with the North East economy being a net exporter, a disproportionately severe impact may well be felt here as a result in the coming months.

“At the moment, with Government support still in place and creditors generally sympathetic to the challenges of the business climate, many companies may find they have invaluable, albeit temporary, breathing space and their directors should be making the most of it now to stave off future potential problems.

Now is the time for them to think about how they move forward and to take advice from a qualified source if they see signs their business is starting to struggle or are worried about the coming year.

“As the saying goes, it’s always worth hoping for the best but planning for the worst, and doing so now will mean businesses have a greater range of options if needed later on.”