What will be the impact of lockdown on business insolvency?

By Mr Bankruptcy

30th June 2020

As we see lockdown measures easing, the Government is looking to drive a bounce back in the UK economy, but figures reported in June by the OECD state that our economy is set to decline by 11.5% in 2020.

Such an economic decline suggests that many businesses will have suffered greatly during lockdown, but what has been the impact on business insolvency?

The initial impact of lockdown

Initially there was a downturn in insolvencies. The average daily compulsory business liquidations fell to 20% of the pre lockdown figures in March. There are a number of reasons for this initial decline, including a reduced number of court hearings and the Government’s introduction of some emergency measures to protect as many businesses as possible from insolvency action.

Despite this, with business profits down by an average of 29% for the first thirty days of lockdown, longer term, there are obviously serious concerns for many businesses regarding the future. A survey by CEBR reports:

• 1 in 10 British businesses say there’s a high risk they will enter insolvency as a result of the coronavirus crisis. This is more than half a million (591,000) businesses 
• 51% of businesses believe there’s at least a small risk they will go insolvent due to the crisis. That’s nearly 3 million firms.

Moving on from lockdown

These statistics seem pessimistic but there is reason for optimism too. During lockdown we’ve seen many businesses work hard to innovate and adapt, finding alternative ways to provide products and services.

I’ve previously spoken about why firms become insolvent we’ve seen business owners make changes to mitigate those risks by making their business relevant in the “new normal”.

Still, uncertain times may be ahead and business owners will be worried about insolvency. One in six firms say they will need at least a year to recover and during this time we will get a clearer picture of just how many survive the longer-term impact of such a dramatic shift in the global economy.   

James Rosa Associates

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