Midlands insolvencies remain low as Government support initiatives extended

The number of companies going into administration across the Midlands during Q3 2020 remained near historic lows as the extension of Government COVID-19 support initiatives continue to help stave off an anticipated wave of corporate collapses.

Analysis of notices in the London Gazette  by KPMG’s restructuring practice showed that 25 companies fell into administration during the third quarter of 2020 across the Midlands, compared to 51 in the same period in 2019.

The year-to-date figures also showed a slight reduction when compared to the prior year, with 107 administrations across the region in the first nine months of 2020, compared with 135 in 2019.
A similar picture was reflected across the UK, with administrations down by 39% in the three months to September 2020, when compared to 2019, with 246 businesses entering administration in the period. The last time numbers were this low was in Q4 2015 when 243 companies went into administration.

Chris Pole, restructuring partner at KPMG in the Midlands, said: “Whilst it is encouraging to see a significant drop in the level of corporate insolvencies, unfortunately this is not a reflection of the wider financial health of businesses across the Midlands. The well-publicised and readily available Government support initiatives, whether that be through HMRC deferments, the furlough and job support scheme, or access to Government-backed loans, mask the underlying stress and challenges which businesses are currently facing.

“The introduction and subsequent extension of the temporary provisions for businesses under the Corporate Insolvency and Governance Act 2020, which was initially due to expire on 30 September 2020, was a welcome relief for business leaders. These provisions, which include a temporary moratorium against debt enforcement action, have no doubt provided extra breathing space for those businesses experiencing cash pressures despite having access to the Government’s support initiatives.”

Although corporate insolvencies have remained low across the UK, aided by the temporary boost provided by the Eat Out To Help Out scheme, the headwinds facing the leisure and hospitality sector in particular are having a devastating effect.

A total of 48 companies across the sector, including the Azzurri and Byron restaurant chains, entered into administration during Q3 – a 41% increase on the 34 seen during Q2.

Looking  towards the remainder of the  year, Pole said: “The debt-enforcement moratorium is currently due to expire at the end of December and consequently we do not expect to see a significant rise in insolvencies across the Midlands in Q4 whilst creditors are unable to take enforcement action.

“Business leaders should use the rest of the year to effectively review their financial projections for 2021 and where required, consider, plan and implement the restructuring options available to them.  Waiting until the turn of the year to undertake this process will be more challenging, particularly at a time when the possibility of aggressive creditor action may be reintroduced into the mix.”

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