778; that is the number of companies, according to the latest monthly statistics issued by the Government, that have gone into administration across the UK since the start of the financial year. It sounds a lot, writes David Little, Partner in our Corporate and Commercial team, but in fact this is below trend for the time of year.
Administrations were 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 the fourth quarter of 2015 when 243 companies went into administration.
With all the negative news emerging from the Covid-19 crisis, the Chancellor of the Exchequer should take some credit that the support initiatives for businesses continue to help stave off an anticipated wave of corporate collapses.
Of course, the pessimist would say that the statistics are behind the reality of what is happening on the ground, . That once the furlough scheme in October ends, more companies will fall to the Liquidator. However, the reasons are more subtle.
Chris Pole, a restructuring partner at accounting organisation KPMG, was quoted as saying here: “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. 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.”
The ‘Eat Out to Help Out’ scheme provided just a temporary safety net for many pubs and restaurants, with restaurant chains. Azzurri and Byron, entering into administration during the third quarter of the year.
Mr Pole has more gloomy news: “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 whilst creditors are unable to take enforcement action.”
Seek help early
So in effect, Government intervention has temporarily protected, rather than saved, businesses from their creditors, particularly their landlords.
Our advice to business owners, as I wrote here last month, is to use the rest of the year to review your financial projections for 2021, and consider the restructuring options available to you. Avoid delaying this until the turn of the year, when the Government may ease back on the protection measures from creditors.
My Bishop & Sewell colleague, Rhian Radia, Head of our Employment team, wrote this article last month, with some steps to take if you have been made redundant, or fear that your role is at risk of redundancy.
It is no weakness recognising you may need help. We will continue to monitor the situation very carefully, and stand ready to have a confidential conversation with anyone who may need to discuss their business’s future.
David is a Partner in the Corporate & Commercial team, a business lawyer, focusing on transactional work, especially acquisitions and disposals of businesses. He also has a corporate finance practice, focusing on smaller cap listings and fundraisings on the Standard List, AIM and NEX.
As a passionate sportsman and spectator, David has built up a credible sports practice, focusing particularly on governance matters and on marketing, merchandise and sports finance generally. He has also built up a large client following in the media, marketing and PR sectors, as well as restaurants, bars and contract catering.
He is well able to understand matters from the client perspective, having spent time working in industry as group legal counsel and company secretary for an AIM-listed financial services business and having also served on the Board as a non-executive director for an AIM-listed financial training company.
His clients value his commercial experience and his common-sense approach to transactions and company law matters, and he is viewed as pragmatic, focused and always accessible.
- Mergers & Acquisitions
- Corporate Finance
- Equity Capital Markets
- Natural Resources
- Sports Marketing and Governance
- Retail & Leisure
- Restaurants, Bars & Catering
Please contact me via email or call me, on +44 (0)20 7079 4143.
The above is accurate as at 02 November 2020. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.