Government Covid-19 emergecy measures keep insolvencies low – but fears grow they will rise later

June 23, 2020

A surprise fall in the number of corporate insolvencies could herald the ‘calm before the storm’, the South West branch of insolvency and restructuring trade body R3 has warned.

Figures published by the Insolvency Service show a 30% drop in companies going bust at the height of the coronavirus crisis in May compared to the same month last year. 

The total of 944 was also a decrease on April’s figure – possibly due to the emergency government measures to help businesses beginning to kick in.

Earlier this month the Treasury said almost £35bn had been lent in government-guaranteed loans to more than 830,000 firms nationwide.

However, R3 South West chair Philip Winterborne said many businesses that were now being supported could face dangers later on.

Philip, pictured, a partner at Bristol boutique law firm Temple Bright, said: “The corporate insolvency figures show the government’s Covid-19 support measures appear to be helping many businesses which 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 continue to play a role.”

The statistics provided only a snapshot of how the pandemic was affecting businesses, he said, and they still did not provide a full account of the impact it may be having on levels of insolvencies.

Many companies were likely to be in the period of ‘calm before the storm’ and need to be prepared to combat economic turbulence.

Philip Winterborne continued: “In addition to the shocking news that GDP fell by 20.4% in April, research also shows consumer spending and consumer confidence decreased significantly between March and April this year. The rent quarter day, which occurs this week, will also put extra financial pressure on many businesses.

“We are all aware that 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. R3 acknowledges that 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 concerned about their company’s finances should seek advice as soon as possible from a professional and reputable source.

“The earlier this is done, the wider the range of potential solutions will be, and the more considered a decision can be concerning a business’s next move.”



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