Hard winter for businesses forecast as rents arrears and debts trigger big increase in insolvencies

August 14, 2020

A steep rise in corporate insolvencies linked to the coronavirus pandemic is being predicted for this winter – and could start as early as October.

New research from insolvency and restructuring trade body R3 indicates that lack of funds to pay their rent is likely to be the biggest cause of firms getting into financial trouble. 

Other reasons are expected to be trade debts, tax bills and wage costs.

The R3 research – based on a member survey of UK insolvency and restructuring professionals – shows an overwhelming majority of respondents (93.7%) expect corporate insolvency numbers to rise over the next year, with 56% predicting that the increase will take place between October and December.

Just over 56% said that they expect corporate insolvency numbers will be “significantly higher” this year compared to 2019, while 37.6% thought they would be “somewhat higher”.

The main triggers for seeking corporate insolvency advice over the next 12 months are predicted to be rent payments or arrears (61.7%), trade debts (49.7%), tax payments or arrears (48.1%), and wage payments (35.5%).

The research took place against a backdrop of falling UK corporate insolvencies during the pandemic, despite the lockdown and the continuing economic turmoil. 

R3 South West chair Philip Winterborne, pictured, a partner at Bristol law firm Temple Bright Solicitors, said “Our members reported that, during April and May, the inquiries they received were mainly around advice on companies’ eligibility for the State-provided relief packages, rather than for formal insolvency support.

“This is in no small part due to the government’s support measures, which have helped a number of businesses which are struggling due to the pandemic.

“It’s clear from the survey results, however, that it’s a question of when, not if, corporate insolvency numbers increase. The support available to businesses has deferred, rather than prevented, the rise in corporate insolvencies expected in our current economic climate.

“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.”

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