Monday, July 6, 2020

Midlands avoids deluge of corporate insolvencies in first month of pandemic

The number of corporate insolvencies seen across the Midlands during April 2020 saw a marginal increase on the previous year, as government support packages have given companies vital headroom to help deal with the COVID-19 pandemic.

According to analysis by KPMG’s Restructuring Practice, a total of 11 companies fell into administration during April 2020 in the Midlands, compared to 7 in April 2019. The year-to-date comparative figures were also flat, with 59 insolvencies in the Midlands in the first four months of 2020, compared with 57 in 2019.

Nationally, insolvencies were down by more than a third in April 2020, when compared to 2019, with 61 businesses entering administration.

Chris Pole, Restructuring Partner at KPMG in the Midlands, said: “Comfort can be taken from the fact that we are yet to see any significant surge in local companies falling into administration, as breathing space has been provided to date by a supportive lending community and range of helpful measures accessible at short notice.

“However, the old adage that ‘more companies fail coming out of a recession than fail going into it’ will be front of mind for many business owners who will be trying to forward plan their exit from lockdown.”

Chris Pole continued: “Planning such exit is inherently difficult given the huge number of ‘unknowns’ which remain, such as; how long it will take for customer demand to bounce back, the cost of implementing appropriate social distancing measures and how the Job Retention Scheme will be phased out.

“Business owners will need to think about whether their existing business model is viable going forward post-crisis; considering whether cost-saving initiatives need to be implemented or if redundancies are required to flex the cost base of the business to match the anticipated income streams which will likely be based on reduced activity levels.

“Whilst many businesses will have taken advantage of the various government support packages available, it must be remembered that this is not ‘free money’ and the loans obtained need to be repaid; such repayments need to be taken into account as part of the post-crisis business model assessment.”

KPMG’s recent analysis of the levels of stress and distress across corporate Britain showed that companies in the telecommunications, pharmaceuticals and food and drink sectors were best positioned to withstand the significant downturn. Conversely companies in the non-food retail, casual dining, and travel and tourism sectors, as well as those indirectly impacted, such as real estate, were most vulnerable to the current economic shock.

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