A winter of discontent?

The government’s strategy for keeping businesses out of insolvency appears to have worked in the short term but be aware of the months ahead.

The government acted swiftly to take steps to safeguard businesses and avoid a slew of companies being placed into insolvency processes during the harsh early months of the pandemic. 

As well as the availability of the furlough scheme and the business interruption loans, the introduction of the Corporate Insolvency and Governance Act in late June gave specific protection to companies struggling to pay their debts and a suspension of liability for wrongful trading for directors, although that came to an end in September.

The new act also introduced significant restrictions against the presentation of winding up petitions against insolvent companies, restrictions that have been extended until the end of the year.

These measures have clearly worked, at least in the short term, as recent statistics show that corporate insolvencies in August 2020 decreased by around 43 per cent compared to August 2019.

The concern for the future is that the short-term effect of these measures will begin to fade as the government withdraws the various lifelines and safety nets put in place. We are already starting to see the adverse effect of this with well-known businesses announcing staffing cuts or temporary closures. 

Recent statistics show that corporate insolvencies decreased by around 43 per cent

Without further support packages, businesses who have managed to keep trading may now be unable to make ends meet. 

We are set for a long winter and businesses should take advice now to ensure they are best placed to weather the storm.

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