The number of companies falling into administration in 2020 fell to an historic low, reports accountancy firm KPMG, who attribute the fall to the government’s support measures throughout the Covid-19 pandemic.
Analysis conducted by KPMG’s Restructuring practice found that just 171 firms in the North West entered administration in 2020, down from 284 in the previous year. This trend was also seen nationwide with insolvencies at their lowest since the firm began tracking data in 2005. Unsurprisingly, the sectors most affected by lockdown, such as tourism, leisure and hospitality accounted for a significant share of administrations.
However, while support measures have shielded many businesses from insolvency during the coronavirus pandemic, KMPG’s analysis also raises questions of how schemes can wind down without causing significant impact.
Blair Nimmo, head of Restructuring for KPMG in the UK, said:
Comfort can be taken from the fact that fewer businesses than expected have been forced into insolvency during the crisis, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations that vital lifeline.
“We also know that there are a number of sectors, including the likes of tech, online retail and financial services, which have seen something of a COVID-bounce.
“We need to be clear, however, that these figures provide a distorted view of reality. Those businesses that remain in hibernation due to ongoing lockdown measures, such as those in the leisure and hospitality and travel and tourism sectors, continue to accrue liabilities while seeing precious little cash flow into the business. At some point, rent and tax deferrals and loans will need to be repaid. The Job Retention Scheme will unwind. Weaning off these support schemes is going to be a massive challenge for many.”
Entering in 2021, it remains to be seen the effects that Britain’s new trade relationship with the EU will have on the economy, particularly in combination with the ongoing coronavirus pandemic. Blair Nimmo added:
There was certainly a collective sigh of relief when a Brexit deal was signed on Christmas Eve, with the UK avoiding a damaging cliff-edge scenario. But as businesses now grapple with the realities of our new trading relationship, there inevitably will be some bumps in the road.”