KPMG: fewer administrations than 2019 - but expect more than 100,000 corporate insolvencies this year

In a surprising study by KPMG the number of firms entering administration in the first week of April this year was less than the same period last year with the same reduction in failures compared to March 2019. The Bank of England predicts the economy will see a 14% retraction this year with a slump taking place as the economy gets back to normal this autumn.

Don't take no for an answer

“There is evidence that the furlough scheme is preventing firms from collapsing,” said Ian Carrotte of ICSM Credit, “while there has been the phenomenon of zombie companies which stagger on from one year to another until the banks call in a loan, they have one bad debt or something like this crisis causes the firm to go bust. They are on borrowed time on the furlough scheme but they’re not earning anything so as soon as the safety net is pulled they’ll go under. My advice to ICSM members and anyone in business is if a firm says they will pay your invoice when the furlough scheme ends don’t believe them. They won’t have any more cash this summer and their priority will be survival. Don’t take no for an answer and press them for payment and use our free legal letters to chase them or use our debt collection service as the courts are open.”

_{Pic: the Irish Times}

Oasis Ireland have gone into administration this week and so have women’s fashion brand Autonom. In the Midlands the motor outfit Arlington Automotive Group who make parts for Ford, Jaguar Land Rover and Nissan have also called in administrators. Car sales have collapsed to pre-1950 levels this spring and retailers like Oasis have been struggling for some time. Picsolve International (the photography company) have also called in administrators as the leisure and events industry has collapsed while in Scotland where the lock down remains strict the construction industry has seen the contractor Neil McGougan call it a day.

Worse than 2008

Writing for Accountancy Age Tom Lemmon reported: “The coronavirus crisis is likely to directly force between 70,000 and 100,000 companies into insolvency, according to Gareth Harris, partner at RSM Restructuring Advisory, while R3, the trade body, suggests that figure could grow substantially over a longer period of time.”

_{The Bank of England}

Ian Carrotte noted that the credit crunch of 2008 created 114,000 corporate insolvencies. He said: “I’ve seen figures likening this downturn to the 1930s but this is a different economy from then. There were still firms making carts for horse drawn vehicles, whale bone corsets and mangles. However the economy is much larger now and interconnected internationally so this recession could top the effects of 2008 by a long way.”

Two spikes of insolvencies

It is a view shared by Duncan Swift, the president of insolvency trade body R3 who feels the number of corporate insolvencies could be several times higher than 100,000. He said: “In the 2008 financial crisis there were 114,000 corporate insolvencies. Now that was as bad a recession as we’ve had in living memory since the 1930s and it was 114,000. Which is why the 800,000 just needs a bit of context putting around it. 800,000 would be a phenomenal number.”

He said there could be two spikes during the crisis with one at the end of the lock down and one further away as firms who survive initially but then fail in the following months.

ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel - while at the moment there's a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach - ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk