Businesses who are planning on accessing financial support from the government until next spring should be plotting a long-term survival plan now, according to one of the UK’s top insolvency professionals.
Chancellor Rishi Sunak recently announced an extension of the initial furlough scheme – which was due to end on 31 October – until March 2021, to provide a significant boost to thousands of business’ cash flow.
The announcement comes amid a backdrop of monthly statistics from the Insolvency Service, which since April has reported a trend of decreasing number of insolvencies versus last year – an indication that the government’s aid is limiting the damage.
In October 2020 there was a total of 856 company insolvencies in England and Wales – a reduction of 42 per cent compared to the same month last year. This was primarily driven by a decrease in the numbers of creditors’ voluntary liquidations and compulsory liquidations which fell by 36 per cent and 76 per cent respectively. Company voluntary arrangements also fell by 42 per cent in October 2020 in comparison to the same period last year.
The latest furlough extension – coupled with temporary restrictions on the use of statutory demands and certain winding-up petitions until 31 December – gives struggling businesses temporary breathing space, and CVR Global’s Adrian Hyde is urging company directors to use this time wisely.
Adrian said: “These latest set of insolvency statistics seem more positive than they actually are, and run the risk of giving company directors a false sense of security.
“The government support being offered to businesses is commendable, but it can’t go on forever and eventually we will start to see insolvency figures rising.
“What the government has actually given struggling companies by extending the furlough is a relief for their cashflow, but also the time to really analyse how they can rescue their business in the long-term.
“While the future is unpredictable, it doesn’t mean that leadership teams can’t begin the process of forecasting for different scenarios.
“The business community is bound by the impact of Covid-19, but each company has its own unique circumstances to navigate in order to orchestrate a recovery – and this is why it’s so important for company directors to consult professional advice sooner rather than later to maximise their chances of long-term survival.”