Fears that ‘a wave of business closures could be on the horizon’

The number of insolvencies has fallen slightly but there are fears that the figures could soon rise and that ‘a wave of business closures could be on the horizon’.

Sam Lyon Associate Solicitor and Head of Corporate & Commercial reports.

Corporate insolvencies decreased to 856 in October 2020 compared to September’s figure of 925 and remained well below October 2019’s figure of 1,485.

Colin Haig, president of insolvency at trade body R3, said the figures masked huge underlying problems that could soon create a surge in the number of company failures.

He said: “The continued low levels of corporate insolvency can once again be traced back to high levels of Government support and widespread creditor forbearance, both compelled and voluntary. With many creditors at present prevented by law from taking enforcement action, the usual triggers for seeking advice on dealing with an urgent debt problem are largely absent.

“Even with the announcement that furlough will be extended until the end of March, job losses are mounting, and many people are entering the run-up to the festive season in a precarious financial position.”

The Financial Conduct Authority found that around 12 million people in the UK currently have low financial resilience, where just one adverse life event can be enough to turn ‘just about managing’ into an immediate crisis.

Mr Haig said: “With constraints on usual levels of pre-Christmas spending, in sectors from bricks-and-mortar retail to hospitality, there is a danger that reduced consumer outlay, exacerbated by personal financial uncertainty, leads to more pain for businesses, who will then be forced to consider more redundancies, in a vicious circle effect.

“With corporate insolvency numbers still far below their pre-pandemic levels, worries are mounting within the profession that a wave of business closures could be on the horizon, made up of both companies which would have become insolvent in the normal scheme of things, along with those businesses dealt a fatal blow by the pandemic.

“Gravity cannot be defied forever, and – with temporary measures stopping creditor enforcement actions against debtors due to expire at the end of the year – the first few months of 2021 could turn out to be difficult ones for large swathes of businesses which have built up arrears with landlords, suppliers, or the taxman.”

If you would like more information about the issues raised in this article or any aspect of insolvency matters and how they might impact your business please contact Sam on 01228 516634 or click here to send him an email.