Corporate Finance

Corporate insolvencies hit four-year low

Corporate insolvencies have dropped to the lowest point recorded since 2016, according to KPMG

Only 274 companies in the UK entered administration in the second quarter of 2020, marking a 28% decline against the first quarter of the year.  

During the period, administrations in healthcare fell by 64%, a “far greater extent” than other sectors and only exceeded by the technology sector, where administrations fell by 71%. 

According to KPMG, this reflects the growing reliance on technology by consumers and businesses during lockdown, placing technology “more firmly than ever at the heart of many business’ operating models”. 

Passenger transport was one of the few sectors to see a rise in insolvencies, however, highlighting that “even the government measures could not give sufficient headroom to some companies that were dependent on our ability to travel”.

Blair Nimmo, head of Restructuring at KPMG in the UK, said: “Clearly government measures have had a dramatic impact. The effect of putting parts of the private sector into a quarter of virtual hibernation has not just severed the link between a fall in economic activity and a rise in corporate insolvency, it has flipped it on its head.

“The severity of the poor financial health of some in retail and casual dining is not reflected in these figures. These sectors were struggling pre-Covid-19 and what you have seen since the easing of lockdown as they emerge from hibernation is a raft of closures, CVA proposals and administrations. These are likely to continue and indeed accelerate as some of the Government support schemes wind down.”

He added that a “dramatic rise” in insolvency numbers should now be expected in the coming quarter.

He said: “Businesses are emerging into a quite different landscape. They may be required to navigate unforgiving territory, combining the withdrawal of government support, local lockdowns, consumer caution and shrinking margins due to new health and safety regimes and reduced productivity.

“The months ahead will see real pressure on cash flow as a consequence of the working capital demands of re-opening, whilst at the same time servicing and repaying new bank facilities, repaying tax arrears and the costs of any required redundancies.  The need to focus on building financial resilience and maintaining liquidity cannot be overstated.”

He added: “Given this outlook, the Q3 insolvency data could tell quite a different story. However, the most significant change to insolvency legislation in nearly two decades came into effect at the end of June. 

“These provisions – including a new moratorium process providing breathing space from creditor pressure and temporary changes to certain director requirements – may help some businesses find a solvent solution to their financial challenges, avoiding the need to enter administration or liquidation.”

Back to top button

Please disable your ad-blocker to continue

Ads are the primary way in which publishers generate the revenue needed to pay their staff. If we can't serve ads, we can't pay journalists to write the news.