Businesses have been warned not be ‘lulled into a false sense of security’ after new government figures show that company insolvencies in the second quarter reached their lowest level since 2010.
The figures show that the overall number of company insolvencies in England and Wales fell by 23% compared to the previous three months, and by 33% compared to the same period the previous year.
However the insolvency and restructuring trade body R3 says the drop has been influenced by the government support available to businesses and factors such as the ban on winding-up petitions. It warns companies not to be complacent and to beware of the risk of ‘overtrading’ as more businesses reopen.
Allan Cadman, North West chair of R3 and a partner at Poppleton & Appleby, said: “Despite having the lowest quarter for corporate insolvencies since 2010, now is not the time to be lulled into a false sense of security. We have not seen the full impact of COVID-19 on businesses because of the lifeline the Government’s support provided.
“What we do know is the pandemic has had a distastrous impact on the economy, as evidenced by the 20.4% contraction in GDP in April. In addition, consumer confidence has been low and consumer spending has reduced. This, coupled with the practical effects of lockdown, will hit some businesses hard – retail, restaurants and bars, especially – even if it hasn’t already.
“Our members tell us that the insolvencies which took place at the start of lockdown were mainly companies already in financial trouble. It may not be long before this changes, however, and companies which would normally be viable begin to seek support from an insolvency and restructuring professional.
“As more businesses start to reopen, directors should beware the risk of overtrading – taking on a large volume of new orders without the necessary working capital to support their operations and production. Those who do not keep a very close eye on cashflow could soon find themselves struggling to stay afloat.
“Anyone who is worried about their business’s financial health should seek advice from a qualified professional at an early stage for the best chance of turning their situation around.”