Don’t be fooled by the figures – equally don’t panic just yet. Corporate insolvencies increased by 1,011 in May, up 8.8% on the previous month and a rise of 6.9% against May 2020. Creditors’ Voluntary Liquidations have dominated, with Administrations relatively low.
It doesn’t yet sound like a tsunami of business collapses, given the level of financial support from the Government in spring 2020. But now that most Covid support is on its way out, the numbers are clearly going to get much, much worse.
Many in our own industry of insolvency practitioners and corporate advisers are urging the Government and banks to stop throwing good money after bad protecting businesses that were, in any event, set to fail before Covid struck. The Insolvency Service is starting to get tough with companies and directors who have abused financial support.
Stricken businesses, whether SMEs or larger, are running out of road, so now is the time to at least explore taking action and improving the chances of survival. Continuing to trade and preparing to rebuild isn’t only about numbers, it’s about protecting directors’ reputations, livelihoods and avoiding many other repercussions that ultimately affect people beyond the business entity.
Reviewing options for both formal and informal restructuring strategies should begin without further delay. It may be that insolvency measures are inevitable, in which case at least management is involved at the earliest possible stage, with the best chance of achieving the least painful outcome.
However, if there is even a chink of light at the end of the tunnel, it may be viewed as the basis for a rescue. Consider competitive strategies, financial and operating structures, revenue boosting programmes, short term cost improvement, asset financing and – since we’re talking about ‘taking a long hard look’ – perhaps even management’s fitness for purpose.
Once again, the call to action for businesses at this critical stage is ‘work out, not bail out’.