The Coronavirus pandemic has had a devastating impact on businesses up and down the UK, leading many to face significant financial difficulty.
New analysis from the BBC shows that a large number of businesses failed in March before much of the financial support was made available.
The broadcaster’s Shared Data Unit looked at how many companies posted insolvency notices in the London Gazette – the official public record for insolvencies. It found there was a spike of 4,200 insolvencies during that month as the country entered lockdown.
However, the rate of insolvencies slowed over the next three months, with a further 5,000 businesses becoming insolvent – 23 per cent fewer compared to the same period in 2019.
The major discerning fact between March and the following months was the availability of support on offer to business from the Government and this has led some to suggest that the UK now faces a ‘Zombie Company’ crisis.
A Zombie Company is a business that continues to function on a day-to-day basis but is unable to pay off its debts in full or invest and grow.
According to the Institute for Fiscal Studies (IFS), businesses have incurred significant debt under the current circumstances, with some estimates saying that UK companies may have £100 billion of unsustainable debt by the first quarter of 2021.
Considering the levels of debt within some businesses and their lack of prospects for the future it is likely that just as we have seen the rise of Zombie Companies during the pandemic, so are we likely to see their decline as many enter insolvency as financial support measures are removed.
Stuart Adam, from the IFS, said: “Many firms have been tided over during the period of hibernation partly through loans and tax deferrals, but those mean piling up debts that will make it harder for them to carry on in the longer term.”
If you are aware of a business that is struggling with debt and faces the prospect of insolvency, our specialists are here to help. To find out more about our insolvency and company restoration services, please contact us.