Insolvency pain ahead as most firms survive year of lockdowns
- Credit: PA
Insolvency experts are warning of a flood of business failures when government support measures are withdrawn, despite relatively few collapses during a year of coronavirus lockdowns.
Nationally, statistics released by the Insolvency Service show there were 12,557 company insolvencies in 2020, a 27% decrease compared to 2019 and the fewest since 2007.
The data also shows there were fewer insolvencies across all the main insolvency procedures, with the biggest fall (55%) coming in compulsory liquidations which are typically started by court-orders.
And according to a report by Business Rescue Expert, there were just 1,016 total insolvencies in the East of England in the 12 months since March 2020.
Explaining this fall Andrew Kelsall, insolvency and recovery partner at Larking Gowen, said: "Insolvent liquidations are down something like 40%, year on year, and part of that is because of the government support in terms of the various loan schemes, furlough payments, and the fact the courts are not seeing as many petitions arising."
However, Mr Kelsall said there had recently been an increase in the number of solvent liquidations due to the uncertain climate for firms.
He said: "We've seen an increase of more than 25% of solvent liquidations year on year. In overview I think the increase is coming from people looking for certainty.
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"People are looking for certainty in an uncertain time, and one of the things you can do is take advantage of the current tax rates today.
"They're saying: 'Actually I'm going to cash my chips in now, while I know what my position is'."
But Chris Horner, insolvency director at Business Rescue Expert, warned this trend might not last long.
He said: “Ominously, even with restrictions being lifted and economic activity rising, 2021 will be a worse year for insolvencies in several industries than the year of lockdowns was.
"Government support in the form of backed loans, furloughs and the temporary ban on winding up petitions and other creditors actions are all expected to end sometime in 2021.
“Bounce Back Loan repayments and others will begin to come due, businesses will have to decide if they can re-employ or redeploy their furloughed workers and creditors that have been under severe financial pressure themselves will finally have the ability to look for repayments that might be critical to their own survival.”