This article was published recently by BBC which prompted this email from Gary Pettit to the BBC in response…….bang goes Gary’s knighthood!
I read your article headed, “Warning that thousands of firms face collapse” and concur with Julie Palmer’s views. However, there are some further points to consider.
Firstly, it should not escape our minds that corporate insolvencies slumped during the pandemic as enforcement restrictions, introduced primarily by the Corporate Insolvency & Governance Act, prevented debt enforcement in some key areas. In addition to the (ill-thought out) bounce back loans, together with other financial support available, the Government created a false economy by financially assisting many companies that ought to have failed during 2020-21.
As an insolvency practitioner I am seeing similar patterns across all fields of industry including:
• Those companies kept “Alive” due to COVID support are now started to fail. In other words, current corporate failures include two years’ of relative inactivity on top of usual annual statistics.
• Companies are struggling to secure raw materials. Without those materials they are unable to complete sales and without sales they are being starved of income. This comes to the fore when I am selling company assets, with purchasers paying above market value, primarily due to the extended lead times through “Normal” delivery/ordering routes. Probably the most stark example I can comment on was a compulsory liquidation in late 2022 where the (kitchen fittings/displays) assets were professionally valued at £35-50,000 by my agent, only to realise £180,000 as competing businesses came forward scrambling to secure the goods. It does suggest there is money out there.
• Many are still trying to restore pre-pandemic trading levels but are being caught up by the need to repay BBLs, CBiLS or rent arrears that accrued. This is in addition to the end of the job retention scheme, resulting in overheads returning to previous levels. Utility bills are the latest attack on cash flow and that is probably the core reason for many struggling; they are simply running out of cash.
What does not get mentioned is the Government declined to listen to the dissent shown towards re-introducing preferential status for HMRC. While it is classed as “Secondary preferential” it elevates HMRC up the order of priority of payments. Again, COVID is partially responsible for a high level of tax debt. I believe it went from £16 billion pre-pandemic to circa £39 billion now. However, what we are seeing (and will continue to see) is more “Phoenix” liquidations because the secondary preferential status of HMRC makes restructuring through the likes of a company voluntary arrangement non-viable. That is evident when you consider the insolvency statistics, which report very high liquidations (in terms of percentage of all corporate failures) while CVA numbers are negligible. The implementation of secondary preferential status was ill-thought, misguided and, actually costs the Government with liquidations paying out lower returns to creditors (meaning HMRC recoveries are lower) and the additional burden on the Government of costs inherent with liquidation (ie higher redundancy and other employee entitlement claims, loss of business rates for local counsels, increase in unemployment benefit claims, to name but a few). This practical effect is like ever decreasing circles as creditors of the liquidations are forced to write off debt and, in turn have to review their own financial structure, or even became another statistic of the Insolvency Service, adding further cost burden on Government funds.
If financial problems are being experienced or, indeed, they appear to be on the horizon, then take advice early from PBC. 01604 212150 or email firstname.lastname@example.org.