The North East business rescue profession is bracing itself for a significant rise in company collapses before the year is out, a new survey shows.
The latest study by members of R3 – the insolvency and restructuring trade body – showed that 93.7% believe a rise in the number of corporate insolvencies is inevitable and most likely to arrive before the end of the year.
More than half (56.1%) expect the figure to be significantly higher than in 2019 and a similar proportion say the increase will happen in the final three months of this year, while just over a quarter expecting insolvencies to come in the first three months of 2021.
Rent payments or arrears have been singled out as the main trigger for companies seeking corporate insolvency advice, followed by trade debts, tax payments or arrears and wage payments.
Despite the coronavirus pandemic’s current impacts upon the economy, 42.9% of survey respondents told R3 that they were currently busier than normal, with almost the same number saying their workload was lighter than usual.
Meanwhile, official figures have actually shown a drop in corporate insolvencies, month to month.
Alexandra Withers, North East chair of R3 and an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, said: “Despite the lockdown, the economic turmoil and the fall in GDP of more than 20% in April, Government figures showed that corporate insolvencies during the second quarter of the year actually showed a month-on-month decrease.
“This is in no small part due to the Government’s support measures, which have helped a number of businesses that would otherwise have struggled as a result of the pandemic.
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“Our members also told us that, during April, May and June, the enquiries they received were mainly around advice on companies’ eligibility for the state-provided relief packages, rather than formal insolvency support.”
The Government’s Job Retention Scheme was described as ‘very effective’ by 70.5% of those surveyed, with 45.9% and more than a third (35%) of them respectively saying tax payment deferrals and business rates holidays had been similarly effective.
Mrs Withers said: “The Job Retention Scheme has obviously lifted much of the usual obligation on participating businesses to pay their staff, while tax payment deferrals also help manage a big expense and a common trigger for corporate insolvencies.
“As a result, any income businesses receive during the pandemic can go towards supporting their future activities and mean that supply chains can continue to function in some way during the pandemic. One business’s insolvency can have a ‘domino effect’ on its supply chain, and the Government measures have helped to reduce the risk of contagion spreading from one company to others to which it is linked.
“It’s clear from our survey that it’s a question of when, not if, corporate insolvency numbers increase, as the support available to businesses has deferred rather than deterred the rise in corporate insolvencies that you would expect to see in an economic climate like this.”