The Insolvency Service has published its latest which indicates that the overall number of company insolvencies decreased by 23% in Q2 2020 compared with 3,848 in Q1 2020 to 2,974 in Q2 2020), and by 33% when compared with Q2 2019 (4,425).

Commenting on the figures Colin Haig, President of R3, the insolvency and restructuring trade body, said “Today’s drop in corporate insolvencies is driven by a fall in Compulsory Liquidations and Creditors’ Voluntary Liquidations (CVLs) – influenced, we suspect, by the range of government support available to businesses, the issues around holding court hearings at the start of the pandemic, and the ban on winding-up petitions.”

“Despite the fact we’ve had the lowest quarter for corporate insolvencies since 2010, now is not the time to be lulled into a false sense of security. We have not seen the full impact of COVID-19 on businesses because of the lifeline the Government’s support has provided.”

“What we do have an idea of, however, is the impact of the pandemic on the economy, and we know it has been disastrous. The unprecedented 20.4% contraction in GDP in April – a contraction which undid 18 years of economic growth – is evidence of this.”

“In addition, consumer confidence has been unsurprisingly low, and with many likely to be worrying about their jobs and their financial futures, consumer spending has been reduced.”

“This, coupled with the practical effects of lockdown, will hit a number of businesses hard – retail, restaurants and bars, especially – even if it hasn’t already. It will be interesting to see what effect the measures the Chancellor announced earlier this month have had, and whether they give these industries the shot in the arm they need.”

“It’s worth noting that the next set of quarterly statistics will cover the immediate period after Quarter Day in June and the date for when deferred HMRC debts are due. These two deadlines will have posed a challenge to businesses which have not been trading as they are not likely to have the cash at hand to cover this. They will also have faced additional staff costs and the additional costs incurred in getting their premises Covid safe.”

“Our members are telling us that the insolvencies which took place at the start of lockdown were mainly those where the companies involved were already in some form of financial trouble. It may not be long before this changes, however, and companies which would be viable under normal circumstances begin to seek support from an insolvency and restructuring professional.”

“As more businesses start to reopen, directors should beware the risk of overtrading – taking on a large volume of new orders without the necessary working capital to support their operations and production. Those who do not keep a very close eye on whether they have the financial overhead to fulfil the rush of orders they receive could soon find themselves struggling to stay afloat.”

“Anyone who is worried about their business’s financial health should seek advice from a qualified professional as soon as they start to see signs it’s struggling, for the best chance of turning their situation – and their business – around.”