Mon, 12 Jul 2021 | BUSINESS NEWS
An analysis of new government figures has revealed that corporate insolvencies in the UK fell by more than half during the first six months of the year in comparison to the same period in 2020. The analysis, from Interpath Advisory, showed 301 companies falling into insolvency during the first half the year, compared to 655 in the first half of last year.
The sharp drop has again raised concerns that government support schemes during the COVID-19 pandemic have been propping up “zombie companies” and that the withdrawal of support schemes, such as furlough, could lead to a huge wave of insolvencies. New data has also revealed that emergency government-backed loans for UK companies during the pandemic have totalled close to £80 billion.
Interpath Advisory’s analysis of notices posted in The Gazette showed that business collapses reached particular lows in May and June of this year – with just 32 insolvencies in each month.
Regarding the issue of “zombie companies”, Interpath Advisory chief executive Blair Nimmo said: “The dichotomy of having historically-low insolvency rates at a time of significant economic crisis is naturally prompting concern in some quarters that the taxpayer is propping up an army of zombie companies.”
“But while it is fair to say that insolvencies are being supressed artificially thanks to the raft of support available, we also know there are lots of good businesses out there whose balance sheets are broken solely due to the impact of the pandemic – so it is only right they continue to be given the time and the support to be able to build their way back out of the crisis.”
Mr Nimmo said that “while insolvency practitioners will inevitably get busier”, as support schemes like furlough are withdrawn, "I don’t think we will see the deluge of corporate failures that many have predicted.”
Mr Nimmo also said that some firms could see their post-COVID recovery impacted by rising inflation and shortages of raw materials and labour. However, he added that companies could tap into increasing consumer demand as lockdown eases to raise their prices and provide a valuable boost to cashflow and profits.
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