Home Finance & Investments R3 predicts rise in insolvencies and outlines key challenges ahead

R3 predicts rise in insolvencies and outlines key challenges ahead

Allan Cadman, North West chair of R3

Corporate insolvencies fell to the lowest quarterly total on record during the first three months of the year, according to official figures released today.

However the increase in corporate insolvencies between February and March suggests insolvencies may now be on the rise, according to the insolvency trade body R3. The latest seasonally adjusted figures show there were 2,384 insolvencies in the first quarter in England and Wales, down 21.9% on the previous quarter and 38.3% on the same period last year.

Allan Cadman, North West chair of R3 and a partner at Poppleton & Appleby, said: “It’s clear Government’s support measures are still helping to keep businesses going, but they have pushed back rather than prevented the financial pain of the pandemic from translating into a sharp, sustained increase in corporate insolvencies.

“The total number of corporate insolvencies fell by more than a third in the year to March 2021 compared with the same period a year earlier, while GDP fell nearly eight per cent. A drop in insolvencies of this scale during an economic climate like this suggests that corporate insolvencies are likely to rise sharply in future.”

Allan Cadman said the last year had been tough for businesses, with shutdowns, re-openings, and the need to comply with social distancing guidelines, but there were further challenges ahead.

He explained: “As the Covid restrictions lift and we begin to return to normality, businesses face three key challenges. First, they need to keep a careful eye on their cashflow levels to ensure they don’t fall into the trap of over-trading.

“They also need to make sure they have a plan for reopening in a way that’s sustainable, so they don’t undo their efforts to survive the last year by mismanaging the next couple of months.

“And they need to think about how they will manage when the Government support measures end. Many company directors have delayed planning for this, but they need to use the remaining time they have to put a plan in place for the final quarter of this year and beyond, before the majority of the measures end in June, and furlough is wound up in September.

“We urge anyone who is worried about their business’s finances to seek advice from a qualified source as soon as they become concerned. Doing so will give them more options to turn their financial situation around, and more time to take a considered decision about the best approach for their business.”

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