Company failures down thanks to emergency Covid-19 help, says report
The number of UK firms going bust tumbled by a third last month thanks to Government life-support measures but companies may face greater risks as the economy emerges from coronavirus, according to a report.
A study by KPMG of notices in The Gazette showed 61 companies fell into administration during April, down from 91 a year earlier.
It also marks a 55% tumble on the month before, with 135 firms going into administration in March.
The steep drop comes after the Government launched its mammoth job retention scheme that has seen millions of people furloughed on 80% pay, as well as a raft of loan and finance support schemes.
KPMG said the Government action has given firms the headroom needed to survive the initial hit of the Covid-19 pandemic and lockdown.
But it warned that companies will need to tackle an even bigger hurdle over the recovery phase when the Government weens the economy off its support.
It comes after the Bank of England warned the UK economy was set to plunge by 14% this year in the biggest annual fall on record, with the recovery expected to take more than a year after lockdown begins to lift.
Blair Nimmo, head of restructuring at KPMG, said: “Comfort can be taken from the fact that we haven’t yet seen the deluge of companies falling into administration that many predicted, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations vital breathing space in these early days of the crisis.
“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 executives who now are trying to forward plan their exit from lockdown,” he added.
KPMG cautioned businesses against scaling back up too much and too soon amid uncertainties over consumer confidence and the costs of implementing social distancing.
This will come at a time when the Government’s job retention scheme is set to come to an end and as business interruption loans need to be paid back.
Mr Nimmo said: “While recognising that things will not go back to the way they were overnight, and that a phased approach will undoubtedly be necessary, businesses will nevertheless need to take care not to fall into the classic trap of scaling up too quickly.”
KPMG urged companies to embed their cost-saving gains across day-to-day operations to bolster their financial strength, while also considering possible asset sales.
Its report predicts that companies in the non-food retail, casual dining, and travel and tourism sectors, as well real estate agents, will be the most vulnerable to the economic crisis.
Firms in the telecommunications, pharmaceuticals and food and drink sectors are best positioned to withstand the downturn, it added.