There are still local spikes here and there all over the UK and as we enter the traditional winter flu season, there might be temporary measures deployed if coronavirus cases rise sufficiently.
The government has also declined to implement planned vaccination passports for people attending large events in England so individuals and businesses could now begin to plan their Autumn activities with more certainty.
Against this backdrop it’s been confirmed that the various remaining pandemic support measures including the coronavirus job retention scheme or furlough will definitely end on September 30th along with a lifting of the ban on winding up petitions.
While it was expected that creditors would be able to seek winding up petitions once again, there’s been a sizable catch - so that now bringing a winding up petition is literally a £10,000 question.
New legislation to be introduced in parliament shortly will:
These measures will remain in place until March 31 2022.
Business Minister Lord Callanan said: “The time is right to lift the insolvency restrictions that were needed during the pandemic.
“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures and protections will help them to do that.”
The minister said that businesses should pay their contractual rents where they’re able to do so and also confirmed that existing restrictions will remain in place on commercial landlords from pursuing winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Additionally commercial tenants will continue to be protected from eviction until March 31 2022 while a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic is implemented.
One measure not time bound by restrictions are new legal powers given to the Insolvency Service which allow them to retrospectively investigate the conduct of directors of dissolved companies.
If they can prove that directors were dishonest or culpable in behaviour which led to their company’s failure then as well as being made personally liable for any debts incurred, they can be disqualified from acting as a director for up to 15 years.
This includes bounce back loans so obtaining professional advice is critical if you’re thinking of closing your business.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “The new £10,000 threshold for winding up petitions sounds like a big increase from the previous minimum level of £750.
"But in reality, due to the associated expense in issuing winding-up petitions, the vast majority of pre-COVID winding-up petitions were over the new level in any event.
“Eager creditors will examine their options carefully and look to use whatever leverage they have.
“Hopefully, many companies use the new 21 day period to negotiate sensible repayment plans. Seek expert help if in doubt about how best to approach this.
“Like the insolvency moratorium that’s automatically granted if a company goes into administration, this provides valuable breathing space and time for a business to come up with plans to deal with problematic debt.
“This includes outstanding bounce back loans or VAT arrears - they haven’t been suspended - and a business can still close down, even if a company has these debts but only if it’s done using the right method overseen by an insolvency professional.
“For example, If a business with unsustainable debt wanted to close and started the process in the next couple of weeks - it could probably be concluded before Christmas, leaving the directors or owners free to begin a new venture or career in 2022.”
Time is only an asset if it’s used effectively.
The 21-day negotiation period of winding up petition restrictions and £10,000 floor is only useful if you take advantage and get professional advice now because it will, like all the others, cease eventually.
We offer a free initial consultation to any business owner or director who wants to know the best way to close their company or if possible, restructure and keep it alive, even if it has debts.
Once we get a better understanding of the situation, we can come up with a tailored solution possibly with more options and choices than you thought you had.
But this is only possible if you use your agency and get in touch.
So it’s natural to expect some spluttering and stalling before an engine recovers its temperature and rhythm to start firing on all cylinders again.
The parallels and similarities with the UK’s economic engine and machinery struck us when we saw the official registered company insolvency statistics for April 2021 released by The Insolvency Service.
The total number of company insolvencies for England and Wales last month was 925.
This is a slight reduction on the 992 recorded in March and is 23% lower that the 1,199 recorded in April last year and 35% down on the 1,429 reached in April 2019.
Despite lots of headlines about a “return to normal” we are still experiencing extraordinary times from a statistical viewpoint.
The numbers of registered company insolvencies have reached historic lows since the start of the year of lockdowns, and still remain significantly subdued.
The 925 company insolvencies in England and Wales consisted of 819 creditor voluntary liquidations (CVLs), 26 compulsory liquidations, 75 administrations and 5 company voluntary arrangements (CVAs).
In comparison to the data for the same month from the previous two years, we see how depressed the numbers are right now.
Additionally, there were 38 company insolvencies in Scotland (made up of 9 compulsory liquidations, 28 CVLs and one administration) which was down 17% year on year and 63% lower than April 2019.
There were also 5 company insolvencies registered in Northern Ireland (made up of 3 compulsory liquidations and two CVLs). This is down two from last month and while 67% higher than a year ago, is 74% lower than April 2019 - but while dealing with such relatively low totals, any change could produce high percentages.
The overall UK total of company insolvencies for April 2021 is 968. An overall reduction of 74 on last month’s figure.
As statutory demands and winding-up petitions are still suspended until the end of June 2021 and with other measures such as the CJRS furlough remaining until September, the figures are being artificially depressed from levels we would expect to see given similar trading and external economic conditions.
Christina Fitzgerald, Vice President of R3, the insolvency and restructuring trade body said: “The monthly fall in corporate insolvency numbers shown in the latest published figures has been driven by a drop in both Compulsory Liquidations and Creditors Voluntary Liquidations.
“We now have a year’s worth of pandemic insolvency figures, and it’s clear the Government's support measures have prevented a significant number of businesses from becoming casualties of the economic consequences of Covid-19.
“The big question is what will happen to insolvency numbers as we come out of the pandemic, but there are too many variables to say with much certainty about exactly what this will look like.
“Government has had a challenge on its hands in terms of managing the exit from lockdown and the withdrawal of its financial support measures. How it handles this will help determine if there is a sharp spike of business failures or simply a smoother return to pre-pandemic insolvency levels.
“Company directors need to make the most of the time they have left before these support measures finish to plan for the future, and work out how they will manage without state support.
“The situation is still tough for many British businesses. While spending is increasing, it’s still below 2019 levels and consumer confidence remains low, although people are more optimistic about their finances over the next 12 months.
“The easing of the lockdown in the middle of April, and the further lessening of restrictions recently will be a boost to many businesses. That said, a large number are still having to work in a way that complies with Covid guidelines, adding cost and complication to their operations.
“The temporary ban on winding-up petitions is due to finish at the end of June, and other Government support schemes are due to be withdrawn in the next few months, which will clearly increase pressure on financially struggling firms.”
You might be forgiven for experiencing a sensation of deja vu when you look at the latest official company insolvency statistics.
They appear to constantly be at historic lows thanks to a mix of economic support, legal restrictions and increasing customer demand.
Sadly none of these factors are guaranteed to last for many more months this year. Two are almost certain to be withdrawn and demand can fluctuate due to various factors even at the best of times, never mind during reopening from a worldwide pandemic lockdown.
The one piece of advice we have consistently offered to directors and business owners during this fairly static period becomes more pertinent and imperative with every passing week - get some professional advice!
This time can be valuable to plan the next steps in your business’s recovery strategy or to consider moving in different directions.
We continue to offer a free initial consultation where we can learn about what challenges your company is facing and offer you actionable choices that you can make, often immediately, to bring you closer to your end goal.
Because when the economic winds do change, you’ll be surprised how strong they’ll become and how quickly a April shower can turn into an actual storm.
The Insolvency Service have published their first quarterly bulletin of the year revealing the total number of company insolvencies reported in January, February and March and the finding continues to surprise.
In our analysis of the last quarter’s figures we said they resemble a ski jump - increasingly downhill before a sharp uptick at the end. Well this analogy continues because after a skier launches themselves into the air, they continue to fall downward.
Which is what is happening to the number of insolvencies.
The overall number of company insolvencies for England and Wales from January to March 2021 was 2,384 - 22% lower than the previous quarter and 38% lower than the corresponding quarter from last year - which straddled the pre and post lockdown economy.
Breaking down further the total number of insolvencies we see that creditors voluntary liquidations (CVLs) still remain the most frequent method of insolvency by far with 2,047 procedures in the first 12 weeks of the year - 86% of all company insolvencies.
This is a decrease of 18% from the previous quarter’s figures and down 24% on the same period in 2020.
There were 108 compulsory liquidations which is down 26% on the last three months of 2020 and down a huge 86% on 2020’s Q1 figures. The number of administrations remains at a low total with 192 - down 44% on the previous quarter and by more than half - 52% - on the corresponding timescale from a year ago.
We only saw 37 Company Voluntary Arrangements (CVAs) in the first three months of 2021 which is down by 54% at the end of 2020 and down 46% in Q1 2020. There were also no receivership appointments recorded in the previous six months.
The Insolvency Service continues to think of new ways to restate the logical reasons why the overall numbers continue to remain low.
A combination of a range of government backed financial support measures such as the bounce back loan scheme, an ongoing suspension on creditor recovery actions such as statutory demands and winding up petitions and courts operating below their usual functioning levels have all contributed to the overall picture.
The liquidation rates (per 10,000 active companies) gives us a clearer picture of the broader trends at work as they indicate the probability of a company entering liquidation rather than the number that actually have.
They are immune to one-off fluctuations or other factors and are more comparable over longer time periods than absolute figures.
In the four quarters that ended in Q1 2021, the company liquidation rate was 25.3 per 10,000 active companies in England and Wales. This is the equivalent of 1 in 396 businesses being liquidated in the previous 12 months.
This is down 3.9 on the previous quarter when the rate was 29.2 per 10,000 active companies and down 15.3 on the corresponding quarter in 2020 when the rate was 40.5 per 10,000 businesses.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates compared to 12 months ago.
Looking at the 12 month period ending at Q1 2021 the three industries that saw the highest number of insolvencies were:
The construction industry tends to have the largest number of insolvencies than any other sector but the total number in the past 12 months is 44% lower than the previous period.
Chris Horner, Insolvency Director with Business Rescue Expert, said: “Given that company insolvency figures started rising again the previous quarter, it’s a little surprising to see them fall back again.
“Some coronavirus support measures remain in place but others such as the bounce back loan scheme are seeing repayments start and while businesses will begin to trade more freely, they will also have to start paying business rates, VAT arrears and other bills again too.
“The total number of corporate insolvencies between April 2020 and March 2021 fell by more than a third compared to the same period a year earlier, while GDP fell nearly 8% at the same time.
“A drop in corporate insolvencies during an economic climate like that tells us that it’s still a case of when, not if, insolvency rates begin to rise again, and how quickly.
“By the time the Q2 statistics are released at the end of July, we’ll have a far clearer picture what the insolvency landscape will look like for the rest of the year, especially as the majority of the business support measures end in June.
“We’d definitely advise directors and business owners that are unsure or worried about the prospects for their business to get in touch now to get some advice while they have time to implement any changes that are needed.”
The thing with trends and movements is that by the time the majority of people notice them, they are already well underway.
Once company insolvency figures start to rise this year, it might come as a big surprise for some - especially if they haven’t been paying attention.
That’s why it’s our job to keep you informed about all the big insolvency stories and news as it happens so our clients have a broader view of the state of play in their industries and the wider economy beyond.
Getting your plans in order now and making the decisions and changes that you need to means that when the wind does eventually change, your business won’t be blown away in the storm whenever it arrives.
It’s nearly been 365 days since the UK went into its first national lockdown as it faced its first major public pandemic in over 100 years.
From March 23rd 2020, companies in every sector closed by order and we all had to work, educate and shop from home to contain the spread of Covid-19.
Nothing has really been the same since - especially for businesses.
We’ve spent the past 12 months helping firms that have fallen into financial difficulties to restructure and pay off their debts under new arrangements or allow them to efficiently close so their owners can move onto new challenges when the lockdown is gradually lifted completely.
Alongside our business rescue and recovery work, we’ve also spent a year observing, collating and analysing data from various sources to compile a comprehensive and wide-ranging report of what happened to our country and its companies.
The “Year of Lockdowns” story shows what effect restrictions have had on the various industrial sectors, geographic regions and on the individual businesses and employees that make them up.
This is the story of 2020 - a "Year of Lockdowns”.
In an already historic year, we should start with the news about history being made.
The Office of National Statistics reported that 2020 saw UK official GDP shrink by 9.9% in the previous 12 months - the largest annual fall in over 300 years since the Great Frost of 1709.
The collapse is even greater than any previously recorded including during the Napoleonic wars; World Wars One and Two; the great depression of the 1920s and the great recession of the late 2000s.
The economy regained some ground in the second half of the year as some lockdowns were eased and the “Eat Out to Help Out” scheme attracted more people to support their local pubs and restaurants.
Despite these positive factors, the economy was still 6.3% smaller than it was in February, the last full trading month before the first lockdown was implemented.
This was the biggest fall among all the G7 nations with USA GDP down 3.5%; Germany down 5% and Japan down 5.6% by comparison.
Since the beginning of the lockdown and the Coronavirus Job Retention Scheme (CJRS) being rolled out, 11.2 million workers have been furloughed in the previous 12 months.
With 32.6 million people employed in the UK, this means that one in three workers was in receipt of furlough pay at some point in 2020.
The UK unemployment rate also rose by 1.1% to 5.1% by the end of 2020 with 1,744,000 additional people looking for work. This is the highest recorded level since 2015.
Chancellor Rishi Sunak extended the furlough scheme until the end of September 2021 in the recent budget with employers expected to contribute 10% of furloughed employees wages from July, rising to 20% for August and September.
The Office for Budget Responsibility (OBR) estimates that £73.6 billion had already been spent on employment support schemes such as CJRS and others by November 2020 so this will add to this already striking figure.
While economic and employment activity are expected to rise, greatly, in the next six months as lockdown is gradually lifted, the end of the furlough and other schemes will still create a moment of hazard for businesses and their employees if they can’t find a way to begin to trade profitably by then.
The Insolvency Service reported that since March 2020 there were 8,205 company insolvencies up to and including the end of January 2021.
Broken down by individual industrial sector they were :
The halting of various building projects, both large and small scale, have badly damaged the construction industry over the previous 12 months.
This might seem surprising given the historic damage experienced by the hospitality and retail industries but these have been well publicised and several were more visible to the public as an empty shop unit will be more noticeable than an empty building site.
There was also £453.4 million in redundancy pay and other support benefits paid out in 2020 which was the highest amount in ten years and an increase of 31% from 2019.
Another government agency, the Redundancy Payments Service, will make financial payments to employees whose former employers have gone into insolvency and cannot pay any legally due claims.
With the help of the Office of National Statistics and The Insolvency Service, we looked deeper into the regional insolvency statistics for 2020 and produced a comparative figure - the Corporate Insolvency Ratio - showing the likelihood of insolvency based on the numbers of active businesses in a region/nation and the number of business insolvencies recorded there.
The table shows the number of businesses registered in each UK nation and English region, the total number of business insolvencies and the Corporate Insolvency Ratio for each.
Because of certain statistical caveats, the figures are an approximation based on available data rather than a complete and official record.
On this matrix, the figures show that a business in the Yorkshire and Humber region of England was statistically most likely to undergo an insolvency event than in any other region (1 in 115) while a company based in Northern Ireland would be least likely (1 in 506).
Additionally, businesses in the North East, North West and West Midlands of England along with London were at greater risk compared to the national average (1 in 207) while Scotland, Wales and every other English region was less likely than the average.
Given all the news and information we already know about the year of lockdowns, it might be surprising to learn that the total number of corporate insolvencies actually fell in 2020.
They went down to their lowest recorded levels since 2007.
So what’s going on? The main reasons can be surmised as follows:-
With the exception of the insolvency moratorium, all of these measures are temporary and will be withdrawn by Autumn this year.
Ironically, 2021 could have many more corporate insolvencies than 2020 had.
Chris Horner, Insolvency Director with Business Rescue Expert said: “Ominously, even with restrictions being lifted and economic activity rising, 2021 will be a worse year for insolvencies in several industries than the year of lockdowns was,
“Government support in the form of backed loans, furloughs and the temporary ban on winding-up petitions and other creditors actions are all expected to end sometime in 2021.
“Bounce Back Loan repayments and others will begin to come due, businesses will have to decide if they can re employ or redeploy their furloughed workers and creditors that have been under severe financial pressure themselves will finally have the ability to look for repayments that might be critical to their own survival.”
Debenhams was formally wound-up in the High Court with BooHoo buying its online brands and trademarks to relaunch as an online-only retailer.
The Topshop, Topman and Miss Selfridge brands of the Arcadia group were bought by ASOS with BooHoo returning to purchase the remaining Wallis, Burton and Dorothy Perkins brands.
No physical properties were included in any of the deals.
BrightHouse, the UK’s largest rent-to-own retailer went into administration in April along with Laura Ashley while fitness retailer DW Sports announced it would not reopen in August.
Regional UK airline FlyBe went into administration in March where it remains until a buyer is found. With other carriers unable to operate a regular, reliable UK-wide service yet, 2021 is another year that might have historical consequences.
Research from the Local Data Company shows how devastating the year of lockdowns was for the retail industry.
They estimated that 17,532 chain store outlets located in high streets, retail parks and shopping centres closed last year - an average of 48 per day. This is compared to an overall total of 7,655 openings to replace them, or 21 per day.
The net loss of nearly 3,500 locations was a third higher than in 2019.
“The rise of online shopping and home delivery which provided a shot in the arm for the hospitality industry, might be a more mixed blessing for retail” said Chris Horner, Business Rescue Expert’s Insolvency Director.
“We won’t know for some time how many new habits and shopping methods we adopted in 2020 will stick in 2021 and become permanent or how many will revert to the previous physical model.
“Some companies might bet big one way or another and hope to reap the benefits of being a successful early mover. Others might hedge their bets and hold back investing, redeployment and retraining which could prove more sensible in the medium and long term but would impact negatively in the immediate future in terms of investment and activity.”
We still don’t know how 2021 will unfold as many businesses are still unable to open their doors and trade freely and some won’t until we get into the Summer at the earliest.
For others, even when they do return, they’ll find that customer behaviour, retail trends and other changes will mean that they will have to recalibrate their own offerings if they want to make up lost ground.
One thing we can guarantee this year, maybe the only thing that can be, is that Business Rescue Expert will continue to be here to help advise and guide any business that is having financial issues or doesn’t know what their next professional step should be.
We offer free virtual consultations for any company that needs to clarify its position and understand what options are open to it.
The benefit of acting first is that you usually find you have more choices and strategies available than whoever acts second.
Get in touch and find out what they are for your business - today.
With the announcement of the roadmap out of lockdown and the Chancellor’s Spring Budget imminent something definitely feels different about the time of year.
Along with lighter nights and mornings, it feels like 2021 is finally about to get going.
Especially now businesses in every sector at least have a rough guide to when they can reopen their doors and begin trading again if they’ve stopped during lockdown.
This increase in certainty will both focus minds and give business owners and directors a focus for these next few weeks before they can get on with the real business of serving customers again and returning to profitability.
All of this takes precedence over all the insolvency and administration news that’s happened this month but as usual, while you’re doing your job, we’re doing ours and gathering the most important and intriguing news that’s happened in one convenient place!
The famed footwear manufacturer and seller formally launched a Company Voluntary Arrangement (CVA) as it has been “affected significantly by the impact of lockdown measures on customer footfall across its sites”.
Dune has 43 standalone stores and an additional 175 concessions employing over 1200 staff but no stores or jobs are believed to be at immediate risk.
The arrangement is aimed at moving several stores to a turnover based rent model which would give the company flexibility in the short term.
Restaurant chain Prezzo was bought in a pre-pack deal in December by new ownership Cain International who have had to make some unwanted but necessary changes.
They confirmed that 22 of their restaurants would remain closed for good with the loss of 216 positions.
Jonathan Goldstein, chief executive of Cain said: “We firmly believe that strong hospitality businesses such as Prezzo have a bright future and will play an essential role in reviving the UK economy.
“However, to do so, we must get through this current crisis of mounting liabilities and no revenues. We’re deeply sorry for all those affected by the permanent closure of the 22 non-viable restaurants.
“It was a difficult but essential decision to take but doing so will allow us to save thousands of jobs and create more in the future.”
As we go to press it’s being reported that GAP, the American casual clothes store, is drawing up plans to close its 95 UK stores and move to an entirely online operation - following in the footsteps of Arcadia and Debenhams.
In the last available figures up to February 2020, they saw a 9.5% reduction of sales - before the lockdown was instituted so it would be a fair assumption that the following 12 months figures would be even worse.
The patisserie chain with 20 sites all across London launched a CVA which would help reduce its growing rent debts.
Director Stephano Borjak said they had no option as landlords had lodged a legal action over unpaid rent after one of their landlords filed County Court claims against them.
While there are currently restrictions based on creditor actions such as winding-up petitions and statutory demands, these will likely cease sometime this year, allowing action to continue.
A CVA automatically provides protection against creditor actions regardless of wider suspension so is always a good option for any business looking to get its financial house in order without the threat of legal actions.
Casino owners, Genting have officially announced the final closure of their Southport Casino this month with the loss of 38 permanent positions.
It joins previous locations in Margate, Torquay and Bristol citing the negative effects of the Covid-19 pandemic on physical gambling.
St George’s Shopping Centre
It’s not just the tenants that are suffering during the downturn - landlords are facing real consequences too.
The 280,000 sq ft St George’s Shopping Centre in Preston has been placed into administration by its owners after defaulting on a loan secured against it.
This is the ninth shopping mall in the UK to go into administration in the previous four months, not including the largest UK mall owner, Intu Properties, that went into administration itself in June 2020.
As we’ve previously mentioned, landlords are also currently halted from pursuing creditor action against tenants that have not been paying rent yet still have to service their own debts.
This is one group that will be looking forward to a better 2021.
It might be difficult to read lots of positive articles looking ahead to the lockdown being lifted if you feel that your business’ material circumstances and future situation won’t really change.
There is still a lot that has to happen this year to help companies trade again and be successful and there’s no guarantee that they will happen or that there will be no future infection spikes or even, in the worst case scenario, more lockdowns.
One positive action that all businesses can take - right now - is to get in touch with us for some free impartial advice regarding strengthening your business and your balance sheet.
The time is perfect to look at what your business needs and start implementing it with our guidance during these next critical few weeks before there’s any significant change in restrictions.
So when the shackles are eventually released, you’ll have a stronger, leaner, lighter version of your company to grasp the opportunities that will come.
Insolvency statistics are a curious thing.
The Insolvency Service does a fantastic job in providing regular, reliable and comprehensive statistics.
They give us the clearest indication of precisely what is happening in every UK country regarding company insolvencies. The downside is that they are necessarily time-lagged so by the time the official figures for a certain month are released, we’re three weeks into the new month and already looking ahead.
So it is with the first official statistics for January. These are important because they give us the first official snapshot of 2021 and what this could tell us about the underlying strength of the UK economy and the health of the thousands of businesses that make it up.
The last monthly statistics release we covered for December showed a rise in the total number of company insolvencies which indicated that after a year of historic lows, perhaps cases were getting back to the numbers one would expect given the series of challenges businesses are having to overcome to stay afloat.
Well, the opposite has happened - they fell by over half.
The overall number of company insolvencies in January 2021 for England and Wales was 752, down from 1,228 in December 2020 and down by just over 50% for January 2020 which saw 1,515 cases registered.
We now know that December 2020 was the only month since the start of the first UK lockdown in March where company insolvencies were higher than in the same month of the previous year.
But compared to January 2020, the figures from last month are striking:-
Additionally there were 23 company insolvencies in Scotland (12 compulsory liquidations, 11 CVLs) and 3 in Northern Ireland (2 compulsory liquidations, 1 CVL) making a total of 778.
The Insolvency Service reiterates that as a result of pandemic itself and various Government support schemes including the Corporate Insolvency and Governance Act 2020 including the ongoing suspension of statutory demands and winding-up petitions, would have a strong influence on the numbers.
However none of these entirely solve the mystery of why corporate insolvencies rose in December yet fell away again dramatically in January.
Colin Haig, President of R3, the insolvency and restructuring trade body might have an explanation.
He said: “Many firms are still struggling - and those who usually rely on a strong pre-Christmas trading period will have suffered as the third lockdown meant people couldn’t shop as they have traditionally. i
“It’s possible that a number of businesses entered an insolvency procedure ahead of the December rent quarter day, which would help explain why corporate insolvencies - and more specifically administrations and CVLs - increased then and fell again in January.
“January’s fall in corporate insolvency numbers is primarily driven by falls in CVLs, CVAs and administrations.
“These figures don’t reflect the fact that the economic fallout from the pandemic is continuing to hit businesses, individuals and the wider economy. It’s clear the Government’s support packages - which were extended again in December - are helping prevent the rise in insolvency numbers we would have expected to see in an economic climate like this one.
“However, the support packages and bans on creditor enforcement actions can’t last forever.
“We hope that the Chancellor will use his budget on March 3rd to outline how they will be wound down in an orderly manner in the medium term, and how businesses, staff and the self-employed will be supported during this period.
“Our members are telling us that companies are hesitant to make plans with conditions liable to change at any moment, so clarity around the future of the support schemes will help directors with their planning for the rest of the year.
“The debt burden which UK companies, especially SMEs, have built up is also a concern, as it will drag down the investment which will be a vital component of the economic recovery from the recession.”
Colin Haig’s description makes sense when you consider that entering an insolvency moratorium itself or other insolvency procedure that grants a similar protection such as a CVA.
It gives a company at least ten working days’ protection from creditors’ demands and actions while they work with a professional insolvency practitioner to see how they can make the business stronger and more resilient.
If you feel that your business could benefit from some professional, impartial advice then get in touch with us to arrange a free, virtual consultation.
We can help you make sure that your company is in the best position to take advantage because these legal and commercial conditions won’t last forever.
That’s one thing we can all be certain off.
The Corporate Insolvency and Governance Bill 2020 contains several changes and amendments to laws that could help insolvency practitioners to work even more effectively and efficiently in helping to rescue and restructure companies.
The bill contains both permanent and temporary legal measures to help businesses survive the prolonged coronavirus lockdown and aftermath.
The permanent measures introduced in the bill are:
The temporary measures are set to expire on June 30th but there is provision for the Business Secretary to extend them if required. They include:
Colin Haig, President of R3, the Insolvency and Restructuring trade body, said the bill represented the biggest change to the UK's insolvency and restructuring framework in almost twenty years.
"This legislation comes not a minute too soon.
"The new tools will add to the options available to insolvency and restructuring professionals trying to rescue businesses and will enhance the UK's globally recognised insolvency and restructuring framework.
"Previously the moratorium would only have been open to solvent businesses but now the legislation will enable insolvent businesses to obtain a breathing space to review their options, free from the risk that a creditor may push the company into an insolvency procedure prematurely.
"This greatly increases the number of struggling but potentially viable businesses who could benefit from a vital breathing space and will help to repair the economic devastation caused by the pandemic”.
The new legislation shows the government is serious about giving administrators and insolvency practitioners the tools they need to help rescue and restructure businesses that might otherwise have had a bleak future.
Even the threat of some of the new rules will cause creditors to rethink an aggressive stance and will give a fairer hearing to plans to let a company emerge from lockdown and eventually prosper once again.
Get in touch with us today by email, chat or telephone to see how we can plan to use these new tools to bring your business back from the brink.
Reports came thick and fast that up to 2,000 jobs were in jeopardy and the company was even on the brink of bankruptcy which brought to mind the recent Thomas Cook collapse which involved thousands of passengers being repatriated from abroad.
Flybe was taken over in February 2019 by a consortium called Connect Airways, made up of Virgin Atlantic, Stobart Group and investment advisers Cyrus Capital and has a significant regional UK presence, flying connecting services from airports such as Belfast, Birmingham, Manchester, Southampton, Southend and Newquay.
The airline was due to rebrand as Virgin Connect later this year but analysts believe that the financial requirements have become more onerous and require an injection of even more capital to keep the business aloft.
A deal has been struck between the government and Flybe’s shareholders but precise details remain scant.
The proposed package ultimately looks like a short-term deferral of a £106m Air Passenger Duty (APD) bill that will be paid over a three month period rather than in one installment.
There was some early indication that the airline could seek an emergency government loan of £100m but any state loan would usually be seen illegal under EU competition rules although this might be a moot point after January 31st.
The famously inflexible EU commission approved loans made last September by the German government to save Condor, a subsidiary of the Thomas Cook Group while their sister airline in the UK collapsed.
Any aid would also have to be contingent on the owning consortium increasing their funding of the business too. The situation and response has drawn a furious response from rivals.
British Airways and Aer Lingus owners IAG said the deal was “a blatant misuse of public funds” while BA’s chief executive Willie Walsh said: “Virgin wants the taxpayer to pick up the tab for their mismanagement of the airline”.
After this statement was made, the Press Association reported that IAG had filed a complaint with the European Commission, claiming that the government’s decision to rescue Flybe breached state aid rules and gave the struggling airline an unfair advantage.
Josh Hardie, deputy director general of the CBI struck a more conciliatory tone saying: “The CBI is clear that it’s not the role of the government to bail out failing companies.
“But it’s right the Government examines what help it can provide, given the importance of regional connectivity to so many people’s jobs and livelihoods.
The argument surrounding APD is an acute one and in many ways similar to the complaints high-street retailers make around business rates.
Each flight taken from the UK attracts an APD of £13 so a return trip will see a fee of £26 paid. It’s also higher for longer flights and extras such as premium cabins. This generates up to £3.7bn for the Treasury but operators argue that it drives up their costs and restricts further connectivity and passenger growth as a result.
Apart from any assistance given to Flybe, the government has confirmed that they would be conducting a review into the APD ahead of the Budget on March 11th 2020.
Any plans to cut APD would attract increased pressure from the environmental lobby who would see it as sending the wrong signal to markets at the wrong time. Sam Frankhauser, director of the Grantham Research Institute on Climate Change at the London School of Economics said: “APD is applied as a green tax, based broadly on the principle that the polluter pays.
“Cutting or removing it would essentially reduce or eliminate the carbon price for flying.”
Chris Horner, Insolvency Director with Business Rescue Expert said: “The consortium only purchased Flybe last February last year for £2.2m or less than 1p per share so it’s not a total surprise that they’ve been unable to turn the business back into profit in around a year.
“It’s easier to understand the government’s response as similar to that of HMRC dealing with any debtor who can’t pay their tax bill on time.
“It’s effectively a Time to Pay agreement. The Treasury will receive its money - albeit later than requested.
“The alternative to this arrangement would be another airline out of business, 2,000 direct jobs lost, many more in local supply chains and supporting industries and £106m in lost revenue - the equivalent of 4,000 nurses, 18,000 hip operations or 100 MRI machines.
“The Government is already looking at making changes to airline insolvency procedure and while this situation will only increase the sense of urgency, we’d advise more haste and less speed.
“Keeping the fleet flying” and avoiding job losses is an understandable desire but an insolvent airline continuing to operate would raise a lot of issues - health and safety, financial and legal.
“A proposed plan for an airline insolvency insurance fund financed by passenger contributions via their tickets could be a balanced and sensible measure but as always, the final details are key.”
The Flybe situation shows yet again that there’s no “magic bullet” solution to ensure that everybody from staff to customers to shareholders are protected but reminds everybody that risk is always an element and has to be assessed and managed appropriately.
A free initial consultation with one of our team of expert advisors can help find strategies to secure your business and plot a possible flight path to recovery through 2020 and beyond.
The government had to arrange for 85,000 holidaymakers who were stranded abroad to be flown home at a cost of over £60m to the UK taxpayer, or just over £700 per passenger, although £20m was eventually recovered through the administration process.
Many other airlines have also gone into administration since then including WOW in March this year which is why the Department for Transport commissioned a review led by senior financial adviser Peter Bucks to examine ways in which passengers could be protected from insolvency events in future.
Transport Secretary Chris Grayling said: "We will now consider the range of options put forward by the review, and will work to swiftly introduce the reforms needed to secure the right balance between strong consumer protection and the interests of taxpayers."
Where the balance is depends on who you ask as there’ll be voices on either side of the debate defending their cases.
The main UK airlines - British Airways, easyJet, Jet2 and Ryanair - are relatively financially robust and could reasonably ask why they should have to pay or increase their own fares to absorb the costs of helping passengers flying with their less financially robust competitors?
A tweak to aviation law to allow insolvent airlines fleets and staff to be used to bring holidaymakers home might have the most reasonable chance of success and universal approval as well as being the most logical.
Currently if an airline goes into administration, it’s planes are repossessed or held by airports that are owed money. In the case of Monarch, other airlines were brought in at great expense while their own planes and flight crews were kept on the ground.
The report also recommends that airlines that have a “material adverse change” in their financial situation should be required to notify the Civil Aviation Authority (CAA) but this isn’t as straightforward as it sounds.
Aviation is a cash-positive business. Customers pay weeks or months ahead of taking delivery by turning up for their flight. Airlines are able to keep trading and flying even if their finances are precarious.
The CAA is not without powers itself. After Monarch collapsed it insisted on a temporary Air Travel Trust fund that every UK outbound passenger paid £2.50 into which granted them Air Travel Organiser's Licence (ATOL) scheme protection if they weren’t already covered. If the scheme had continued until after Monarch’s failure then the repatriation bill would have been funded entirely by the Trust Fund rather than by you or I.
R3, the trade body for insolvency practitioners in the UK think that the proposals don’t overcome the specific challenges if an insolvent airline were allowed to continue to fly.
R3 President Duncan Swift said: “One of the reasons why an insolvent airline’s planes are safely grounded is that they’re vulnerable to creditor action. It’s too easy for a disgruntled food or fuel supplier to block a plane on a taxiway at an overseas airport until they’ve been paid what they’re owed. This would pose a risk to passenger safety and disrupt the whole insolvency process.
“If full financial backing arrives then the risks of creditor action is lowered because creditors are more confident of being paid. Without this backing, there are other issues such as crew wellbeing and insurance costs that a special insolvency regime for airlines won’t make go away.
“There is also the proposal that the primary purpose of an airline administration be altered so that passenger repatriation takes precedence over duties to creditors. This would have an impact on creditors’ risk analysis when it comes to trading with or lending to an airline and could affect finance for the whole sector.”
The most sensible advice comes from Chris Horner, licensed insolvency practitioner of Robson Scott and R3 member who said: “European airlines are in a transitional period, so passengers should ensure that wherever possible they have valid SAFI insurance before travelling.”
This might sound obvious but according to research nearly half of UK travel policies do not include SAFI as standard.
Purchases under any ATOL scheme are automatically covered, and a holiday provider must clearly state if they are registered under it. The scheme doesn’t cover flights which are booked separately however.
Whether it’s George A Romero’s classics like Night of the Living Dead; Simon Pegg’s still funny Shaun of the Dead; the bleakly compelling Walking Dead and now The Dead Don’t Die - a comedy with Bill Murray and Adam Driver that has opened the Cannes Film Festival this week.
Partly because we all love a good scare but also because in all of these movies the zombies are cyphers and metaphors for the bigger issues of the time.
For Romero it was racism and rampant consumerism - that’s why Dawn of the Dead was set in a shopping mall. In The Dead Don’t Die - the latest zombie trope sees them spending as much time staring at their smartphones and drinking wine and coffee as much as trying to munch on townspeople, making the point that our modern addictions are deeper seated than we think and perhaps won’t stop at the grave.
Funny thing though - zombies actually exist. Zombie companies that is.
Surviving not thriving
Not literally, although the idea of being served by mindless drones is a hilarious if slightly close to home one regarding certain fast food joints we frequent. Mark Thomas, author of ‘The Zombie Economy’ a book on the phenomenon defines them as: “A zombie company is one which is generating just about enough cash to service its debt, so a bank is not obliged to pull the plug. The company can limp along, it can survive, but it hasn’t got enough money to invest.”
R3, the industry body representing insolvency practitioners, goes further and estimates that over one in ten UK companies could be a zombie business - surviving only due to low interest rates but otherwise unviable and insolvent.
Stuart Frith, R3 President said: “These businesses are capable of ticking along, but growth and increased productivity is out of their reach. This means that thousands of UK businesses will struggle to deal with external or unexpected shocks which could be a problem if they all were to become insolvent at the same time.
“On the other hand, you have a significant proportion of businesses (11%) which are tying up investment and staff which could be used by more productive companies elsewhere in the economy.”
Joking aside, a zombie firm is not a good or healthy entity. It’s one thing if it genuinely stands a chance of recovery but so many organisations aren’t thriving, they are only surviving.
Not every business makes it. Some are successful for a time then falter and close. For others it’s a constant struggle to keep their head above water before they eventually slip under. All of them will teach their owners and directors valuable business and personal lessons that they can implement in future ventures but if they have the opportunity to put them to use.
Keeping a zombie business alive not only stifles personal skills, energy and ambitions but also slows general economic growth and productivity. They literally take up funding and capital that banks could allocate to healthier businesses that could really drive them forward.
If you’ve done everything you can to bring your company back to life and it’s just not happening or if you’re being held back from pursuing new and exciting ventures and opportunities because you’re keeping your business going then maybe it’s time to provide it with a proper and dignified end.
Our expert team of advisors will be able to talk you through all your available options depending on your situation. This could even include entitlements to you that you might not previously have been aware off.
Contact us today and start the process of laying the past to rest so you can finally live your best life. Life is for the living after all - ask a zombie.