The UK is set to suffer a wave of corporate insolvencies in the coming months as the government winds down its business support schemes and the true impact of coronavirus on the economy is revealed.
That’s the view of Julie Palmer from the insolvency experts of Begbies Traynor, who feels that companies in serious financial difficulty will increasingly be forced out of business in the second half of 2020.
Many businesses have essentially been “clinging on to survival” since the virus pandemic hit, she says, but will simply become “unviable” once government support mechanisms are wound down.
Ms Palmer’s comments came in response to research by Begbies Traynor that shows around 33,000 companies across the country having entered a position of ‘significant financial distress’ since the beginning of 2020.
This year has been an exceptionally tough one for a great many businesses in the UK but increases in financial distress represent the continuation of a trend that was already ongoing prior to the coronavirus crisis.
Indeed, Begbies Traynor’s Red Flag Alert research now shows seven consecutive quarters of increasing cases of significant financial distress, with some 527,000 businesses falling into that category at the end of June.
Although the number of companies in trouble is clearly on the rise, steps taken to help the country cope with the pandemic has had the effect of limiting the frequency with which indebted and insolvent businesses are being brought to court.
Instances of CCJs and winding up petitions are down sharply this year compared with last, which has had a profound impact on the number of insolvency cases being legally handled in court.
However, that situation will inevitably change and many companies that are heavily indebted and effectively unable to cover their costs are expected soon to be forced out of business.
“Despite more than 30,000 businesses having fallen into distress since the start of the year, the real level of corporate underperformance is being concealed by inaction on distressed businesses in the courts,” says Ms Palmer from Begbies Traynor.
“With government initiatives to support businesses now winding down, we will start to see the true impact of coronavirus on the UK during the autumn.”
