A sharp drop in the number of company insolvencies shows that government support is continuing to keep companies afloat, says the North West branch of insolvency and restructuring trade body R3.
The latest figures from the Insolvency Service show that there were 752 corporate insolvencies in January 2021 – down by 39% on the previous month and 50% lower than in January 2020.
Allan Cadman, North West chair of R3 and a partner at Poppleton & Appleby, says the figures do not reflect the impact of the pandemic on businesses and the wider economy. He called for the Chancellor to clarify how support measures will be wound down to ensure greater clarify for companies planning ahead.
Allan Cadman said: “It’s clear the Government’s support packages – which were extended again in December – are helping prevent the rise in insolvency numbers we would have expected to see in an economic climate like this one.
“However, the support packages and bans on creditor enforcement actions can’t last forever. We hope that the Chancellor will use his Budget on March 3rd to outline how they will be wound down in an orderly manner in the medium term, and how businesses, staff, and the self-employed will be supported during this period.
“R3 members are telling us that companies are hesitant to make plans with conditions liable to change at any moment, so clarity around the future of the support schemes will help directors with their planning for the rest of the year. The debt burden which UK companies, especially SMEs, have built up is also a concern, as it will drag down the investment which will be a vital component of the economic recovery from the recession.”
Allan Cadman said the fact that the number of insolvencies rose in December then fell away in January could be due to businesses entering an insolvency procedure ahead of the December rent quarter day.
“Many firms are still struggling – and those who usually rely on a strong pre-Christmas trading period will have suffered as the third lockdown meant people couldn’t shop as they have traditionally,” he added.
Struggling businesses can now take advantage of new measures such as the moratorium period introduced by the government to help firms in distress. Allan Cadman added: “The new restructuring tools introduced by the Government provide a fresh range of options for companies in distress, but to make the most of them it’s more important than ever that business leaders seek advice as early as possible.”