Insolvency predictions ‘vastly exaggerated’, but swift action needed says RSM

Audit, tax and consulting firm RSM says that whilst a spike in corporate insolvencies as great or greater than the levels last seen in 2008 is almost inevitable, the current numbers being mooted represent a “major exaggeration”.

RSM predicts that there will be an “initial flurry” of insolvencies, as was seen in 2008, for those businesses who were struggling before the current health crisis emerged, or who had limited resources to fall back on.

However, it says for many others the opportunity to “mothball”, defer payments and seek government support will at the very least delay any decision to permanently shut, and allow the directors to consider every option available to them over an extended period.

RSM’s prediction comes off the back of recently announced and far-reaching measures by the chancellor including the Business Interruption Loan Support (CBILS) and a Covid Corporate Financing Facility.

The firm said these measures “are welcome”, but will not “in their own right” achieve the prime minister’s stated ambition of no company facing insolvency as a result of the coronavirus, nor will a large segment of UK businesses even qualify for this support.

Graham Bushby, partner and national head of RSM restructuring advisory, said: “Whilst these unprecedented Government measures are laudable, the reality still remains that in the short term they will not prevent the insolvency of some companies as they do not directly inject cash quickly enough. And, in the longer term, they may only act as an avoidance or delaying measure, unless other restructuring options are pursued.”