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Insolvencies down by a third in April

The number of corporate insolvencies in April was down by a third against the year prior, according to new research from KPMG.

The firm said that the range of government-backed support packages launched in light of the ongoing pandemic has given companies “vital headroom” to deal with the crisis. 

A total of 61 companies fell into administration during the month, compared with 91 entering administration in April 2019, according to an analysis of notices by KPMG’s restructuring practice.

However, there were 135 recorded administrations in March, compared to 116 recorded in March 2019. 

In total, there were 444 insolvencies during the first four months of 2020, down 5% from the 468 recorded between January and April 2019. 

Blair Nimmo, head of restructuring at KPMG, said: “Comfort can be taken from the fact that we haven’t yet seen the deluge of companies falling into administration that many predicted, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations vital breathing space in these early days of the crisis.

“The proposed changes to insolvency legislation, which include the suspension to wrongful trading rules, are also likely to help relieve the pressure on directors, some of whom have chosen to stop production and/or enter hibernation where they may previously have had little choice but to appoint administrators.”

He added: “However, the old adage that ‘more companies fail coming out of a recession than fail going into it’ will be front of mind for many executives who now are trying to forward plan their exit from lockdown.”

“While recognising that things will not go back to the way they were overnight, and that a phased approach will undoubtedly be necessary, businesses will nevertheless need to take care not to fall into the classic trap of scaling up too quickly.”

His comments come as KPMG warns companies of a  “number of unknowns” going forward, such as customer demand, the disruption across supply chains, the cost of implementing social distancing measures, and whether the government’s Job Retention Scheme will be “tapered out”.

Nimmo added: “Many will have burnt through cash reserves during the lockdown period, and while some will have taken advantage of the various government support packages available, it must be remembered that at some point, loans will still need to be repaid – a burden which comes on top of having to finance any ramp-up in production, repay tax deferrals and re-engage staff who have been furloughed.

“Companies should therefore think about embedding as much of the cost-saving gains made in their initial crisis response as possible into their day-to-day operations, as well as opening dialogue with key suppliers and financial stakeholders on repayment plans that support a recovery on both sides of the table.”

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