The Pandemic In Numbers

As we now come out of restrictions, directors and other stakeholders will need to know exactly how their companies are performing, keeping an eye on whether their business is sufficiently funded (either cashflow or capital) to meet both the opportunities and the challenges of the next six to 12 months writes Alan Meiklejohn, Partner at Harrison Clark Rickerbys.

A few numbers are enough to indicate the effect the pandemic has had on the economy and on some of the government’s support schemes, in particular:

Unemployment

Before the pandemic, less than 4% of the economically active people aged over 16 were unemployed. Whilst this rose to 5.1% at the height of the pandemic, this has since reduced and continues to do so. However, anecdotal evidence suggests that will increase after the withdrawal of the furlough scheme.

The furlough scheme has protected more than 11m jobs since the pandemic began and as at January 2021, 4.7m workers were on furlough. The pandemic saw 693,000 payroll jobs disappearing including 368,000 in hotel, restaurants and pubs and 120,000 in shops. However, and again anecdotally, it is anticipated that following the withdrawal of furlough, the increase in job losses will be nearly as bad as had first been envisaged.

Finally, nearly two thirds of the fall in number of employees has been among the under 25s.

Government borrowing

Of the various business relief schemes available, of the initial Government financial support schemes, which were closed at the end of March 2021, the following had been used, according to the British Business Bank

Product Bounce Back Loans CBILS Future Fund CLBILS Number (as of 25/03/2021) 1,531,095 98,344 1,236 716 Total Value (£) £46.5bn £23.3bn £1.2bn £5.3bn

The level of debt being borne by SMEs, especially, has promoted concern that it could be unsustainable and there is a consensus (which is already being seen) that a large part of the monies lent will not be repaid. Finally, the Institute for Government considers that Covid-19 will have cost the public finances £394bn in 2020/2021.

Insolvencies

Not unsurprisingly, given the various support schemes available to businesses, Corporate insolvencies for early 2021 were 20% lower than the same period in 2020 and 37% lower than 2019 and overall insolvencies for the year 2020/2021 were lower than the previous 12 months, with the construction sector continuing to lead the field. In July 2021 there were 1,904 registered company insolvencies and unfortunately this was 13% higher than the number registered in July 2020 but was 24% lower than the number registered pre-pandemic in July 2019.

Of those corporate insolvencies to the end of March 2021, there have been 129,748 overdrawn director’s loan accounts, compared to 61,983 in the previous year with an average amount outstanding of £78,482. What this shows is not only the level at which directors are using the company’s money for their own purposes, but also an increase in the frequency by which this is occurring. Again, these are just the companies that we know of, i.e. the ones that have entered an insolvency process.

However, and on a more positive note, and following a recently concluded survey by R3, in 2019 restructuring and insolvency professionals rescued 297,000 jobs, saved 7,200 businesses and returned a combined £1.82bn to creditors in corporate and personal insolvency cases.

The next six to 12 months is going to be a challenging time for a number of businesses and sectors who will have to cope with the combined effects of lockdown AND the country easing itself out of lockdown.

The various headwinds that businesses will see include the end of furlough, the Government-backed loans starting to become repayable, the various suspensions on enforcement processes, such as the use of statutory demands and winding-up petitions, will fall away at the end of September 2021 (although the limit above which a petition can be presented has been temporarily increased from £750 to £10,000) and commercial landlords being able, again, to forfeit a lease for non-payment of rent (although this suspension not due to be lifted until March 2022). 1st October 2021 will also see an impact on the enforceability of ipso facto clauses in certain circumstances being curtailed.