Government Help: Is it Delaying the Inevitable?

Government help for businesses during the Covid-19 crisis may have delayed the inevitable for thousands of firms – and could see a dramatic leap in company failures when the plug is pulled on support.

That’s the view of Tom Gardiner, Associate Director of Cavalry, who says the evidence points towards businesses being kept alive that would have, otherwise, gone under regardless of the pandemic.

He was commenting on the latest monthly insolvency statistics for England and Wales which followed a trend of seeing fewer company insolvencies year-on-year, which could mean a major crisis being stored for early 2021.

Tom said: “The Government help has thrown lots of money at the crisis and there is a huge amount of cash floating around when you look at furlough, CBILs, BBLs and deferments on VAT bills.

“It has saved good businesses which will, hopefully, be able to recover once the crisis is over. However, the statistics for any year show that there are around 1,500 failures a month. So, if we are around 600 short of that number for each month in 2020, it means those companies are somewhere and if they were failing before Covid they will, in the main, be failing after the crisis is over and the support comes to an end.

“Taken purely statistically, it means there could be around 5,000 businesses that would have failed by now but have managed to survive because of the support and, also, because it’s much more difficult for creditors or landlords to take action right now.

“With furlough running to April that’s another four to five months and could be another 2,000 to 3,000 businesses surviving that may be wouldn’t have.

“If you add in many more businesses that are failing because of Covid-19 and the potential for that to cause even more insolvencies, the Government has to be prepared for the bubble to burst in a big way when the support comes to an end.”

That latest statistics show that in November 2020 there was a total of 889 company insolvencies in England and Wales, comprised of 767 creditors’ voluntary liquidations (CVLs), 34 compulsory liquidations, 73 administrations and 15 company voluntary arrangements (CVAs). There were no receivership appointments.

The overall number of company insolvencies in England and Wales decreased by 41% in November 2020, when compared to the same month last year. This was primarily driven by a decrease in the numbers of CVLs and compulsory liquidations which fell by 28 per cent and 88 per cent respectively. The number of companies entering administration in England and Wales in November 2020 also fell when compared to the same month last year by 51 per cent. CVAs fell by 29 per cent in November 2020 in comparison to the same period last year.

Between the 26 June and 30 November 2020, four companies obtained a moratorium and two companies had a restructuring plan sanctioned by the court in England and Wales.

There was a 38% reduction in Debt Relief Orders and a 32 per cent reduction in bankruptcies in England and Wales in November 2020, compared with the same month last year. The reduction in bankruptcies was driven by a 26 per cent fall in debtor applications and a 60% reduction in creditor petitions.

There were, on average, 7,057 Individual Voluntary Arrangements registered in England and Wales in each of the three months ending November 2020, 3 per cent higher than the rolling three-month average observed in the same period ending November 2019.

If you aren’t sure of how your business is going to survive the current climate even with government help, then the most important thing to do is to seek professional advice as early as possible – as the earlier this is done, the better the chances are of your business surviving and the more options there will be.

Contact Cavalry Global today to speak to one of our licensed insolvency practitioners.

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