This is a guest blog by my friends at PBC Business Recovery and Insolvency. Written by Gary Petitt.
What is the outlook for the UK economy post lockdown? That is a question I have been asked many times, while others tell me how busy my profession will be.
The truth is, nobody can accurately predict what will happen. Personally, I have heard views from, “It is going to be a tough time, but we will get through it,” to others predicting 800,000 – 1 million businesses will fail over the next 12-18 months.
Before we look forward, let us look back. I have worked through two major recessions, being 1990 and 2008. The first of these saw UK officially enter recession at the end of the 4th quarter of 1990. Corporate insolvencies were up 44% in 1990 (from 1989) with the level of failures increasing with 1991 being 60% higher than 1990. A further increase was suffered with 1992 being 72% higher than 1991. While numbers dropped in 1993 corporate failures still totalled 26,316 as compared to 18,720 in 1990.
You then compare that with the 2008 recession which was entered at the end of the 3rd quarter of 2008. 2007 had seen 15,774 corporate insolvencies, rising in 2008 to 21,082 (an increase of 34%). 2009 saw this figure further increase to 23,979.
What the 1990 and 2008 recessions told us is the peak of business failure may well arise a year or two after officially entering recession and levels remain high for a year or two after the peak. However, this looming crisis is likely to be different to those past recessions.
While we may officially enter recession in the 3rd quarter, it is likely corporate failures will start to rise immediately as opposed to previous trends of corporate failures rising in the wake of a recovering economy. The principal difficulty will be cash flow as most industries will find themselves back at pre-lockdown operational costs (including salaries as furlough ceases) but also, some will have the additional burden of servicing the bounce back and business interruption loans, as well as any deferred tax payments. All this cost pressure will be challenging when it is anticipated “Normal” levels of turnover may not return for some time.
In saying the above, it would be remiss of me not to mention corporate insolvency numbers fell by 8.5% in the 1st quarter of 2020 (as compared to the corresponding quarter of 2019). However, this maybe artificial as according to a well-known high court judge I spoke to recently, the working hours of the courts have been reduced with only 40% employment retained and winding up petitions have fallen by 85% principally as a result of HMRC ceasing enforcement action on standard unpaid tax matters. Many other petitions have been adjourned under temporary COVID directives so there could be an explosion of activity once UK starts getting back to a semblance of normality.
This may all appear to come across as negative but overall the UK economy has the strength to recover and the services provided will continue to be in demand worldwide. The key messages readers should take from this are:
- Continue to monitor your cash flow without a “Salesman” eye. Be critical and challenge the numbers.
- Review your overhead structure to see where reductions and removals are available.
- Take early advice from your accountant, Solicitor and, where appropriate, an insolvency practitioner. It’s best to anticipate a problem rather than have to deal with problem that has arisen.
- Should you have an insolvency-related issue then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to firstname.lastname@example.org or access our website at www.pbcbusinessrecovery.co.uk
Message from Steven Mather
I just wanted publicly to say Thank You to Gary and the team for putting together this article. It’s interesting reading. As an insolvency solicitor in Leicester I’ve helped and advised many business in difficult times, as well as acting for insolvency practitioners like Gary. I’m pleased that we often work in partnership together on matters. They’re nice people to deal with as well as very good advisors.