Analysis from professional services firm KPMG attributed the drop to the array of government COVID-19 support measures continue to provide a lifeline for those businesses who have been adversely affected by the pandemic
Analysis of notices in The Gazette by KPMG’s Restructuring practice showed that 111 companies in Yorkshire went into administration over the course of 2020, down on the 160 recorded in 2019.
The region is reflective of a trend seen nationally, with the overall number of insolvencies down 22 per cent on 2019. The number of insolvencies seen in the leisure and hospitality industries – which have borne the brunt of the impact of lockdown restrictions – also fell sharply from 49 in quarter three to 27 in quarter four. However, this sector still accounted for the lion’s share of administrations, alongside building and construction (27); real estate (24) and retail (22).
James Clark, Restructuring Partner at KPMG in Yorkshire, said: “Comfort can be taken from the fact that fewer businesses than expected have been forced into insolvency during the crisis, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations that vital lifeline.
“We also know that there are a number of sectors, including the likes of tech, online retail and financial services, which have seen something of a COVID-bounce.
“We need to be clear, however, that these figures provide a distorted view of reality. Those businesses that remain in hibernation due to ongoing lockdown measures, such as those in the leisure and hospitality and travel and tourism sectors, continue to accrue liabilities while seeing precious little cash flow into the business. When the anesthetic of the Chancellor’s support schemes begins to wear off,, deferred rent, deferred tax, and bank loans will all need to be repaid. The Job Retention Scheme will unwind. Weaning off these support schemes is going to be a massive challenge for many.”
While the pandemic and resulting lockdown measures continue to have ramifications for many businesses, the impact of the UK’s new deal with the European Union has also come into focus.
James Clark explains: “There was certainly a collective sigh of relief when a Brexit deal was signed on Christmas Eve, with the UK avoiding a damaging cliff-edge scenario. But as businesses now grapple with the realities of our new trading relationship, there inevitably will be some bumps in the road.
“Some sectors are seeing an immediate impact on cash and liquidity. There have been early signs of disruption across supply chains, particularly on roads and at ports as customs changes, increased paperwork and delays start to have a knock-on effect on both suppliers and those awaiting deliveries. This leaves some companies with the issue of having cash tied up in stock, unable to be dispatched to consumers, but with bills still to be paid and no obvious solution on the horizon.”
Looking more broadly to what the year ahead has in store for UK businesses, James Clark concluded: “While 2020 was largely about emergency loans for many businesses, 2021 is going to be about restoring customer confidence and consumer demand, allied to shoring up the supply chain.
“The pandemic has encouraged businesses to focus on cash and liquidity alongside their profit and loss accounts – an excellent habit to have. This is fundamental for companies of all sizes as, if cash flow issues do arise, spotting them early and having enough time to deal with them is critical.
“2020’s economic twists and turns demonstrated both the difficulty in, and importance of, creating prudent cash and working capital forecasts. In 2021 it’s more important than ever that business owners consider a range of scenarios that hope for the best, whilst also planning for the worst.”
“Different industries, such as transport, retail and hospitality, will have different sector-specific considerations. Whether good or bad, having planned for the scenario they end up in, knowing the impact on P&L, liquidity and funding requirements needed under different circumstances, is likely to provide directors and their lenders the confidence and reassurance they need as the economy slowly reopens.”