Almost two-thirds of all businesses could be at risk of insolvency, according to official figures that reveal the UK could suffer “a flood” of bankruptcies over the coming months.
The Office for National Statistics (ONS) said that 64% of businesses across all industries were at risk of insolvency last month, with 43% of companies running on less than six months’ cash reserves.
The latest Business Impact of Coronavirus Survey (Bics) from the ONS found that the accommodation and food service industries and the administrative and business support industries had the highest percentages of firms at severe risk of insolvency, at 17% and 9% respectively.
Earlier this month the business secretary, Alok Sharma, reinstated rules that force directors to stop trading if they believe their business is insolvent. The rules were lifted in March to allow businesses to continue trading, often using large government loans.
A separate report by the insolvency practitioners Begbies Traynor found that more than half a million UK businesses were in “significant distress” due to the impact of the pandemic.
The latest “red flag alert” report for the previous quarter revealed that 557,000 businesses were under severe strain after government restrictions hit sales.
Julie Palmer, partner at Begbies Traynor, said a ban on lease forfeiture and winding-up petitions has caused a backlog in company collapses.
She said the government’s decision to lift protections that shielded directors from the laws that ban trading while insolvent was expected to result in mass insolvencies and redundancies.
“With so many businesses limping along there could be a flood of insolvencies when the courts do get back to anywhere near normal capacity and attempt to clear the backlog of pending cases,” she said.
“This in itself, combined with the end of the furlough scheme and other government support measures is likely to have a material impact on the UK business failure rate,” she said.
“A combination of grim economic data, and very poor trading conditions, particularly in the most vulnerable sectors, such as hospitality, will take its toll and this is expected to feed through to next year’s first quarter, particularly when the government ends its high-profile corporate life-support measures.”
The report also revealed a 14% increase in the number of food and drug retailers in significant distress since the start of lockdown in March.
Across all sectors, there has been a 9% jump in the number of companies in significant distress since March, representing around 63,000 firms.