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Corporate Insolvency ‘Wave’ Likely to Hit in 2021

By Jon Munnery
10 December 2020

A wave of corporate insolvencies is likely to hit the UK economy next year as the true impacts of the coronavirus pandemic come to be exposed.

That’s the view of Ric Traynor from the corporate insolvency specialists Begbies Traynor, who is expecting business failures to happen on a significant scale next year even if the economy is able to rebound somewhat from a recession plagued 2020.

A contributing factor will likely be the scaling back of emergency government support for businesses affected by the pandemic, Mr Traynor told the London Evening Standard.

“There is very significant distress out there, there is a bow wave of problems,” he’s quoted as saying.

“There are plenty of companies that are just avoiding insolvency to claim furlough money to protect staff,” he added. “Once furlough ends, they will have to go down the insolvency route.”

Huge parts of the economy have been affected by the coronavirus situation and, while many have been able to bounce back and are well-placed to grow in 2021, others are on a far from stable financial footing.

Indeed, Begbies Traynor’s latest ‘Red Flag Alert’ data suggests that around 557,000 companies in the UK were in “significant distress” financially during the third quarter of this year.

Business failure rates are understood to have been held back in part because of government policy interventions but also because the county courts dealing with judgements in corporate insolvency cases have been delayed and sometimes prevented from functioning by the pandemic.

Julie Palmer from Begbies Traynor said recently: “With so many businesses limping along there could be a flood of insolvencies when the courts do get back to anywhere near normal capacity and attempt to clear the backlog of pending cases.

“This in itself, combined with the end of the furlough scheme and other government support measures, is likely to have a material impact on the UK business failure rate.”

Many thousands of companies across the country recently took on ‘Bounce Back Loans’, which were distributed by banks but backed 100 per cent by government guarantees, in order to help them financially survive the worst of the virus crisis.

It is unclear currently what proportion of those loans will ever be repaid but expectations are that at least a sizable minority of businesses who took on Bounce Back Loans will find it tough to make their repayments on time and cover the interest amounts they will eventually be asked to pay.

Jonathan Munnery
Partner
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