Credit and Source: Accountancy Daily
‘Insolvency gap’ statistics suggest at least 3,300 UK business collapses are stored up for when the moratorium on insolvency actions ends on December 31, says UHY Hacker Young
The top 20 accountancy firm, according to Accountancy Daily’s Top 75 Survey, says the ban on creditors petitioning to wind companies up may have saved many otherwise healthy businesses but it can’t be expected to preserve those businesses that would have failed in 2020 even without the coronavirus crisis.
There have been only 6,419 business insolvencies between April and October this year, a 36% reduction from the 10,076 during the same period last year, according to insolvency service statistics.
‘This “insolvency gap” suggests there are thousands of companies only being kept alive because HMRC, landlords and other creditors are prevented from winding them up’ said Peter Kubik, partner at UHY Hacker Young.
He said: ‘This will continue as long as the government keeps the music playing and the punch bowl topped up but at some point that will have to come to an end.’
On average there are 9,777 business insolvencies from April – October over the last five years.
The firms says that the number of business insolvencies would have soared this year without the bans on insolvency actions such as winding up petitions, evicting commercial property tenants and other Covid government support schemes including Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loan Scheme (BBLS) and furlough.
One way to stop insolvencies soaring next year would be for HMRC to commit not to close companies that cannot pay their tax bill when the broader moratorium on winding up petition ends.
Unless there is more support from the Treasury for struggling businesses when the moratorium ends on December 31, there is likely to be a wave of insolvencies at the start of 2021.
In addition, the government has confirmed that the ban on evicting commercial property tenants will be extended for the final time to March 31.
Insolvencies among some of the hardest hit sectors like the construction, hospitality and retail sectors are far below trend this year, despite facing extremely difficult trading conditions during the pandemic.
Lockdown restrictions have forced many of these businesses to close for much of the year. When the moratorium ends, its likely these businesses will represent a large proportion of insolvencies.
Kubik added: ‘The ban on winding up petitions and other forms of government aid are supressing real insolvency rates but the true damage will be exposed when the tide goes out.’
Credit and Source: Accountancy Daily
