A significant increase in the number of companies facing insolvency and liquidation is being forecast for later this year after the government’s financial support schemes are wound down.
According to Ric Traynor from the corporate insolvency company Begbies Traynor, the relatively low levels of insolvency seen across the UK in 2020 will increase dramatically later this year.
Speaking to the newspaper City AM, Mr Traynor suggested recently that many thousands of businesses have effectively been shielded from insolvency only because they’ve had access to government initiatives and to the financial support they’ve afforded.
That support, along with various other protections and tax breaks, has given most companies the capacity and the cash flow to survive the pandemic but massive challenges clearly lie ahead for operators across a wide range of sectors.
Among the issues that thousands of companies will face as the government rolls back its direct support from September 2021 will be those relating to credit ratings and the difficulty of demonstrating viability to potential creditors.
“Those businesses that have been protected and still have fundamental problems are going to face formal insolvency, and that’s why we expect the number of insolvencies to increase over the course of the next year or two,” Mr Traynor is quoted as saying.
“Also, businesses that went into the pandemic relatively unscathed, but have had a year of no business and continue to accrue liability like rent, all that will need sorting out.”
Insolvency rates among businesses fell to a two-year low in February 2021 and were recorded at a level almost 50 per cent below where they were in the same month of the year before, according to the Insolvency Service.
Those official figures are understood to reflect the effectiveness of the financial protections and support that the government has been providing to businesses in response to the Covid-19 crisis.
According to Mr Traynor from Begbies Traynor and other experts on the subject, those low rates of corporate insolvency will not last and the worst could still be yet to come in the UK when it comes to SMEs being forced out of business by the pandemic.
