‘Let failing firms go bust’ plea as chancellor opts to prop up businesses

Chancellor of the Exchequer Rishi Sunak

Has chancellor Rishi Sunak gone too far in trying to prop up failing firms? - Credit: PA

East of England insolvency experts are calling on the government to “accept the inevitable” and let go of failing firms.

The plea follows government measures introduced in June to shore up businesses by suspending commercial property evictions until March 25, 2022, and extending a ban on winding up petitions until September 30. 2021, where their debts relate to the pandemic.

Alistair Bacon, eastern chairman of insolvency and restructuring trade body R3 and director of AMB Law in Ipswich, acknowledged many companies would welcome the breathing space the September 30 deadline gives them — but warned of the wider picture.

“While the extension of these measures will benefit many companies, as time goes on the government will need to consider the impact on creditors — who also have staff and overheads to pay. Balancing these interests is a difficult task for the government,” he said in his R3 role.

“However, the government’s decision also gives directors and business owners a further — and possibly final — window to plan how they will move forward when these temporary measures end.”

But — speaking in a personal capacity and not for R3 — he warned there were repercussions to shoring up one part of the economy at the expense of another and that such “breathing space” measures could have the opposite effect to that intended.

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“In my view this artificial situation will lead to paralysis of the economy benefiting only the unscrupulous,” he said, adding his firm thought such measures had already “gone too far”.

“Things have moved on — apart from anything else, we are still in the throes of a global catastrophe and it is clear that the effects of Covid will be felt for some considerable time to come. Everyone would agree that temporary measures cannot be kept in place ad infinitum — so the question is as to when we should start to ease off. It is inevitable that many businesses will fail as a result of Covid,” he said.

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“It cannot be right to hold the entire business community to ransom in the name of assisting a few. We would question the extent to which a blanket ban on petitions and a blanket ban on commercial property repossessions is actually now helping.

“There is also no doubt that a very substantial proportion of government bail out finance and furloughing has been fraudulently claimed and that only a tiny proportion of it will ever be recouped by the Treasury (although it may be bolstering the Buy-to-Let and luxury car markets).”

The transition back to “real life” when the measures do end will be “extremely disruptive” — and a huge backlog in insolvency cases continued to grow, he warned.

In addition to other measures, the state is continuing to cover 80% of wages until the end of June under the furlough scheme, with this tapering to a 70% subsidy next month with at least 10% covered by employers, and reducing until it is removed at the end of September.

Explaining the extension on the evictions ban to MPs, Treasury minister Steve Barclay said they were establishing a backstop whereby tenants and landlords would go into binding arbitration.

“To be clear, all tenants should start to pay rent again in accordance with the terms of their lease, or as otherwise agreed with their landlord, as soon as restrictions are removed on their sector if they are not already doing so. We believe this strikes the right balance between protecting landlords and supporting those business that are most in need,” he said.

R3 is urging firms in trouble to use the extra time they have been granted to seek advice from a qualified professional — and to do so as early as possible.

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