Businesses warned of ‘calm before the storm’ as figures reveal continued fall in corporate insolvencies

Surprise falls in the number of corporate insolvencies across the country could herald the ‘calm before the storm’, the Midlands branch of insolvency and restructuring trade body R3 has warned.

Statistics published on Friday by the Insolvency Service show that there were 944 company insolvencies in England and Wales in May 2020, which is a decrease on the figure for April 2020 and a 30% drop compared to the number for May 2019.

The Insolvency Service data comes after figures were published by the Treasury revealing the extent of the emergency loan package offered to businesses during the COVID-19 pandemic, with Government-guaranteed lenders approving almost £35bn of support to more than 830,000 firms nationwide.

R3 Midlands chair Eddie Williams, a partner at Grant Thornton in Birmingham, said: “The corporate insolvency figures show the Government’s COVID-19 support measures appear to be helping many businesses which may otherwise have struggled during this period of economic disruption.

“This, in part, explains the drop in the number of businesses entering an insolvency process. There are also operational and logistical factors – such as the partial closing of the courts at the end of March – which continue to play a role.”

R3 Midlands stresses that these statistics provide only a snapshot of how the pandemic is affecting businesses, and that they still do not provide a full account of the impact it may have on levels of insolvencies.

Williams warns that many companies are likely to be in the period of ‘calm before the storm’ and need to be prepared to combat economic turbulence.

He said: “In addition to the shocking news that GDP fell by 20.4% in April, research also shows consumer spending and consumer confidence decreased significantly between March and April this year. The rent quarter day, which occurs in the fourth week of June, will also put extra financial pressure on many businesses.

“We are all aware that the longer lockdown continues, the more damage the economy will sustain. Yet easing restrictions on trading prematurely could lead to a wave of new infections and an even greater danger to business and personal finances. R3 acknowledges that the Government has a difficult job in balancing these considerations as it plots a path forward.”