As we approach the anniversary of the COVID-19 pandemic the latest statistics from Begbies Traynor’s Red Flag insolvency alert system are just as ‘unprecedented’ and worthy of concern as other pandemic related statistics.
It has been estimated by Red Flag that around 630,000 businesses are in serious distress following the most significant quarterly increase since 2017 and a 14% increase from the 557,000 businesses in serious distress at the end of quarter 3 of 2020.
When drilling down into industry specific statistics, some of the hardest hit are real estate and property services, hotels and accommodation and financial services which have seen year on year increases in the number of business facing significant distress of 39%, 32% and 38% respectively. These figures are most likely underestimates given the wealth of temporary financial support mechanisms deployed by the government - the benefit of which will have no more longevity than a caffeine fix after a sleepless night.
Since 2019 there has been an overall 27.5% increase in businesses considered to be in significant distress which represents 136,000 additional businesses facing the gallows. Begbies Traynor have cautioned that these figures are merely the tip of a very large iceberg.
The figures for corporate insolvencies however do not reflect the above. During October, November and December of 2020, the number of County Court Judgements lodged against companies fell by 31% compared to the same months in 2019, the number of winging up petitions fell by an astonishing 85% and the total number of administrations in 2020 fell 22% from 2019.
This reduction in formal insolvencies is not the manifestation of strong government policy revitalising a despondent economy but a temporary stay of execution. The government support packages and the suspension of insolvency proceedings are not creating viable, resilient businesses but are delaying the inevitable iceberg to the hull of the government’s White Star Line-esque hubristic proclamations that UK businesses will not sink.
Directors must be mindful of their conduct and cautious that creditors’ powers have been attenuated but not indefinitely. Despite the suspension of wrongful trading actions, it is still paramount that the principles of sound corporate and financial governance are obeyed, and duties appropriately discharged.
If you are concerned about your business, take professional advice as early as possible or contact a member our Insolvency team.
