Member Article

North East Business Owners Advised Of Overtrading Dangers As Corporate Insolvency Figures Rise

North East business owners are being warned of the dangers of trying to do too much too quickly as the economy begins to open up.

Alexandra Withers, North East chair of insolvency and restructuring trade body R3, was speaking after the latest corporate insolvency figures for England and Wales revealed a 45% month-on-month rise, from 685 cases in February this year to 992 last month.

She has highlighted the risk of companies becoming insolvent through overtrading, as they strive to make up for revenues lost through lockdowns, and find themselves having balance sheet and creditor liabilities which outweigh their assets, due to cashflow or payment problems.

And she is advising regional business owners to put shaping a sustainable reopening of their operations at the heart of their business planning process.

Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, says: “The economic damage caused by the pandemic is starting to be reflected in levels of insolvency, although Government support has postponed rather than prevented the true picture being shown as yet.

“As lockdown restrictions continue to unwind, there are reasons to be optimistic, as many North East firms have adapted and reinvented themselves during the pandemic and may be in a better position for the coming months as a result.

“We may also see consumer spending increase, but companies need to be aware of the risks of over-trading if they don’t have the cashflow needed to cover the full costs of reopening and restocking.

“It’s completely understandable that firms which have weathered the difficulties of the last year will want to get ahead as quickly as possible, but trying to do too much too quickly can easily result in severe strain being placed on their resources, and could lead to overtrading, which could put businesses in real danger of becoming insolvent despite it surviving the pandemic.

“Business owners need to plan for a sustainable reopening of their businesses by ensuring that forecasting is robust, management information is timely and accurate, the short and long-term cash flow situations are fully understood, and key decisions are properly reviewed, both internally and by professional advisors.

“This will give them the best possible chance of keeping potentially difficult situations under control and hopefully avoiding them altogether.

“The Government’s recent decision to extend a number of its temporary insolvency measures allows any businesses whose finances have been affected by the pandemic to explore how they might improve their situation. We urge them to take this chance, and to start by seeking advice about their options from a qualified source.”

This was posted in Bdaily's Members' News section by Julian Christopher .