Bishop & Sewell

When Andy Haldane, the Governor of the Bank of England says ‘All crises open up opportunities to think afresh,’ it’s worth reflecting not just how our political masters are responding but how are we all responding to the uncertain circumstances in which we find ourselves, writes Michael Kashis, Managing Partner and Head of our Corporate & Commercial team.

In spite of the economic uncertainty central banks and finance ministers’ actions should be applauded for keeping the level of mass unemployment to relatively low levels.

This interesting analysis from ING Bank suggests the labour market across Europe withstood the second wave of COVID-19 better than might have been expected. ING says, “According to the latest data for October, unemployment in the eurozone has been declining since July. What is quite remarkable for a shock this unprecedented is that the unemployment rate was just 8.4%, up just 1.2 percentage points from February 2020. For a labour market that is known to experience peaks in unemployment in excess of 10%, this is extraordinary and provides a strong buffer for the impact from the second wave.

“With still relatively many jobs supported by short-time work schemes, the question is how long these schemes will continue now that the second wave is hitting, and new lockdowns cause a similar situation compared to the difficult first wave. According to latest data out of Germany, the number of people in short-time work increased again in November and December.

“For many countries this is not an imminent issue as most short-time work schemes had already been extended until the end of March 2021. Only Spain stands out as a worrisome case, where the short-time work scheme is due to expire at the end of January. A lengthening seems necessary to avoid a further sizable increase in unemployment. However, the longer the lockdowns last, the higher the risk of companies going bust. In such a scenario, unemployment would increase independent of government support schemes.

“Those extensions of the scheme do often include somewhat less favourable conditions than at the start of the crisis though. France, at 6%, is still high on the list of large eurozone economies leaning on short-time work, and is expected to make conditions less attractive at the end of the month though – increasing the employer contribution from 15% to 40% of the benefit. All in all, short-time work is likely to continue to support the labour market through the difficult second wave in most large economies but take-up could become smaller under less favourable conditions.”

UK hotel sector seeks urgent Government support

On a sector by sector basis the picture is clearly not good for some. It’s hard to see how further insolvencies in the UK’s hotel sector, for example, can be avoided as leisure and business travel will be severely affected well into the second half of the year.

Quoted here Russell Kett, Chairman on HVS London, a hospitality sector consultancy says, “While strong gains in top-line revenues when they come, will be cause for celebration, operating profits will be anaemic and less than half of 2019 levels in the Provinces and around a third of 2019 levels for London hotels. When fixed costs are then deducted many operations will be loss making and will experience negative cash-flow until further strong revenue gains can be made in the second half of 2021.”

In my experience it is the independently owned hotel businesses with constrained financial resources or liquidity which will be the hardest hit. However our advice would always be that before a business owner breaches banking covenants and stops paying invoices seek professional guidance to see what restructuring might be possible before you call in the receivers. As Andy Haldane says, ‘crises open up opportunities to think afresh.’

Pension schemes

Earlier this month a famous retail brand Edinburgh Woollen Mill sadly entered administration owing over £51m to unsecured creditors, including a £17.5m defined benefit pension scheme deficit, according to the administrator’s proposal.

It could several years before the full scale of the pandemic reveals its damage to defined pension schemes, and the impact this could ultimately have on the Pension Protection Fund. According to Pension Age magazine HMRC, trade creditors, landlords and the pension scheme are unsecured creditors during the administration process. The pension scheme representing the largest portion of this debt at £17.5m, whilst HMRC was owed around £10.5m and debts to trade creditors were around £11.4m.

Commenting on the process, a spokesperson for the Pension Protection Fund (PPF) stated: “Insolvency events are a concerning time for employees and pension scheme members. We want to reassure members of The Edinburgh Woollen Mill Ltd Retirement Benefits Scheme that they are protected by us.”

It’s long been a concern that pension scheme interests in the case of insolvency needed further protection, which the government aims to address with the Corporate Insolvency and Governance Bill.

Ultimately it will be we the taxpayers who bear the brunt of the costs to ensure the PPF is adequately funded. Let us hope that ING are correct in their analysis: “While the recovery is set to take a firm hold of the economy from the second quarter onwards, mild increases in unemployment are still to be expected due to the delayed labour market impact of several economic shocks. In particular, a rise in insolvencies is probably the biggest threat to the labour market in 2021.

“Judging from previous experiences, we would be surprised if unemployment would ultimately run up nearly as high as during the Eurocrisis. However, it only needs up to 33% of all people currently working under short-time work schemes eventually losing their jobs to push eurozone unemployment above the 10% mark.”

If you need advice or help regarding Corporate & Commercial matters, please contact Michael Kashis or another member of our expert Corporate & Commercial Team on 020 7631 4141 or you can email

Category: News | Date: 13th Jan 2021

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