Corporate insolvencies look set for sharp rise

The Midlands branch of insolvency and restructuring trade body R3 is urging company directors to plan ahead for the withdrawal of Government Covid support schemes, following a record low in quarterly insolvencies.

Latest Government statistics for England and Wales show that there were 2,384 corporate insolvencies in the first quarter of 2021, a reduction of 21.9% compared to the previous quarter’s total of 3,053, and a fall of 38.3% compared to the first quarter of 2020 (3,863).

R3 Midlands chair Eddie Williams, a partner at PwC in Birmingham, said: “The fall in corporate insolvencies to the lowest quarterly total on record has been driven by an overall drop in all corporate insolvency processes. Additional Government statistics published in April, however, show an increase in corporate insolvencies between February and March of this year.

“It’s clear that Government support measures are still helping to keep businesses afloat, but they have pushed back, rather than prevented, the financial pain of the pandemic from translating into a sustained increase in corporate insolvencies.

“The total number of corporate insolvencies between April 2020 and March 2021 fell by more than a third compared with the same period a year earlier, while GDP fell nearly eight per cent. A drop in corporate insolvencies of this scale during the current economic climate would suggest that corporate insolvencies are about to rise.”

With Covid restrictions starting to lift, R3 Midlands is urging company directors and owners to consider their future strategy, viability and how they will manage when Government support measures end, with steps put in place before the majority of measures end in June, and the furlough scheme is wound up in September.

Eddie Williams continued: “Owners and directors need to keep a careful eye on their cashflow levels to ensure that they don’t fall into the trap of over-trading.

“They should have a plan for reopening which is sustainable, so that they don’t undo their efforts to survive the last year by potentially mismanaging the next couple of months.  

“R3 stresses that anyone who is concerned about their business’s finances should seek advice from a qualified source as soon as possible. Doing so will provide more options to turn around their financial situation, and more time to make a considered decision about the best solution for the future.”

Pictured: Eddie Williams