Member Article

Business Protection Measures Fail To Stop Sharp Rise In Corporate Insolvencies Through Second Quarter Of 2021

Government support for businesses during the pandemic has failed to prevent a significant rise in corporate insolvencies across England and Wales through the second quarter of the year - but it has still provided an essential lifeline for many struggling firms and stopped the situation being much worse.

That’s the view of Alexandra Withers, North East chair of insolvency and restructuring trade body R3, after the corporate insolvency figures for England and Wales for the second quarter of 2021 revealed an increase of more than 31% on the figures for the first three months of the year.

The new Insolvency Service statistics show that there 3,116 corporate insolvency cases lodged between April and June this year, compared to 2,371 in the preceding three months.

The new Q2 figure also represents a four per cent year-on-year rise from the same quarter in 2020.

The quarterly rise has driven by an increasing number of firms being put into liquidation by their directors through Creditors’ Voluntary Liquidations (CVLs), which happen when shareholders choose to put a company into liquidation because it is insolvent.

Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, says: “The latest corporate insolvency figures clearly show the toll that the challenges of the last three months, and the twelve before them, have taken on the business community.

“It’s hard to say exactly what’s driving this increase in CVLs, but it could be that a significant number of company directors have decided they can no longer go on trading as a result of the pandemic, and are opting to close down their businesses by using the CVL process before the situation gets even worse further.

“While many regional business owners were hoping the lifting of the lockdown would help them, they reopened amid low consumer confidence, a time when people were being encouraged to stay local, and when the economy was still a long way from recovering from the blow the start of the pandemic dealt it.

“The formal end of lockdown may have improved their situation, but it wasn’t the boost many businesses had hoped for.

“The Government’s business support measures have remained in place over this period and are likely the reason why the quarterly increase isn’t as severe as it could have been.

“This support has been a lifeline for many businesses, but with the furlough scheme now winding down, directors now need to take the time to plan for how they’ll manage when this initiative ends.”

Alexandra Withers is now advising North East business owners who think they might be facing financial difficulties to get qualified advice as quickly as possible to give themselves the best chance of finding a sustainable way forward for their companies.

She continues: “Looking ahead, the removal of the final Covid restrictions and the success of the continuing vaccine rollout means there’s a chance many businesses may be able to return to near-normality again, and there are some bright spots ahead on which we can all focus.

“The IMF has predicted the UK economy will grow by seven per cent this year, consumer spending is now above 2019 levels, and research shows that people are more optimistic about their personal finances.

“However, anyone who is concerned about their business finances should seek proactively advice from a qualified source as soon as possible as taking the initiative, rather than avoiding the issue, means you will have more options open for finding a positive way forward.”

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