Is the insolvency profession booming die toi Covid?

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The Insolvency profession must be booming? Or is it the calm before the storm?

Insolvency Practitioner Antony Batty, our MD, gives his thoughts on how well companies are weathering the ‘Covid storm.’

Picking up the phone at the moment brings back memories of the credit crunch of 2008/2009, with the caller invariably opening the conversation with the comment “You’re an Insolvency Practitioner, you must be very busy right now.” My answer is generally “no, but I think we may be experiencing the calm before the storm.”

The evidence from the Insolvency Service, who recently published the company insolvency statistics for Q3 2020, showed that insolvencies were 39% lower than the same period in 2019. I do not think anyone will remember 2019 as a year with a high number of company failures, so the numbers for this year, so far, are very low indeed.

Set against that, unemployment is rising and barely a day goes by without news of a national employer making thousands of redundancies.

So, in this article, I ask how are companies weathering the Covid storm? Or has the Government found a magic solution to the boom and bust cycle?

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Fewer pressure points for Directors

In my opinion there are currently fewer pressure points forcing Directors to make hard decisions. Instead they are taking advantage of the life rafts which are being offered by Government and bobbing along into the future, including:

The Government has extended Furlough to March 2021 – meaning that most companies can pay their staff.
HM Revenue & Customs are not aggressively pursuing PAYE/NI or VAT. The Government even pays Furlough monies gross, relying on recipients to account for PAYE/NI when due.
Landlords cannot pursue tenants for non-payment of rent until the end of 2020.
Creditors cannot issue statutory demands or winding up petitions as a means of collecting monies owed to them.
Tens of thousands of Bounce Back Loans and CIBLs have been issued to companies
Many small businesses received grants of £10,000-£50,000.

In summary, the Government are currently giving companies the ‘air to keep their life rafts inflated’, which is why company insolvencies are low. We may think the air is free. It is not, of course, and the key question is how much is this particular air costing?

The Institute for Government, in a Report dated September 2020 before the recent extension to the Furlough scheme, estimated the cost of Government support for Businesses in 2020 at £56 Billion, and Support for Households (Furlough & self-employment support) at £83.7 Billion. These figures assume that all Bounce Back Loans and CBILs will be repaid in due course.

These are huge numbers, and put in simple terms, it is the equivalent of one year’s spending on the NHS and social welfare.

A soft landing or a heavy landing for companies?

The immediate question is how much longer the Government’s support will last and how quickly will it want to plug the huge hole it has created in the public finances? This is both a political and an economic/financial/welfare question and it probably all depends on the effectiveness and efficacy of the vaccines that look as though they are coming on stream soon.

This is then followed up by the really important question for companies, which is how many will be facing insolvency when the Government’s support is phased out?

Anecdotally, we hear that many thousands of companies are right on the edge. So, let us hope that most of the Company life rafts land softly on dry land at some future date and that the Government keep pumping in the air! Only time will tell how many gently deflate or burst along the way because of a heavy landing.

What can an Insolvency Practitioner do to help?

We are not just here for the compulsory and unavoidable liquidations. We’re also here to help companies in financial difficulties to recover and turn things around, whether that is through restructuring and refinancing or through an insolvency procedure such as an Administration or a Company Voluntary Arrangement which can deliver the breathing space that companies need to get back on the road to recovery. Click here to see what we had to say at the beginning of the first lockdown in March.

Although we do not know when Government support will start to wind down, my advice is that if you know that the underlying position of your company is weak, then act now! The sooner you get in touch with an Insolvency Practitioner, such as Antony Batty & Company, the sooner we can recommend a solution. We will talk you through all the options available, so that you know exactly where you are, helping you to make the best possible decisions. The first discussion is free.