Government support sees failures fall below last year
Blair Nimmo: ‘there remain a large number of unknowns’
Government support packages have stemmed predictions of a sharp rise in corporate insolvencies resulting from the pandemic.
Instead Scotland saw only 35 administrations in November, 23 fewer than the same month last year, according to data from KPMG.
Furthermore, current trends indicate that the total number of insolvencies for 2020 will be significantly lower than the 491 cases in the previous year.
Experts say support measures – including the further extension of furlough until April 2021 – have provided “breathing space” for many businesses that otherwise would have struggled to survive the pandemic.
The government has provided £2.3 billion to support businesses across Scotland, including 100% rates relief for many firms, especially in the hard-hit hospitality, tourism and retail sectors.
There were widespread warnings that without this support hundreds of businesses would fail and unemployment would rocket.
Blair Nimmo, KPMG UK’s head of restructuring, said: “Comfort can be taken from the fact that we haven’t yet seen the deluge of companies falling into administration that many predicted.
“However, the old adage that ‘more companies fail coming out of a recession than fail going into it’ will be front of mind for many executives who now are trying to forward plan their exit from lockdown.”
He added: “There remain a huge number of ‘unknowns’ which make planning for an exit particularly difficult – from how long it will take for customer demand to bounce back and minimising disruption across supply chains, to the cost of implementing social distancing measures.”
He said it was also unclear whether the Government’s Job Retention Scheme will be tapered out, “failing which many businesses are likely to make significant redundancies across their employee base.”
He warned that businesses will need to take care “not to fall into the classic trap of scaling up too quickly.”
He said: “Many will have burnt through cash reserves during 2020, and while some will have taken advantage of the various government support packages available, it must be remembered that at some point, loans will still need to be repaid – a burden which comes on top of having to finance any ramp-up in production, repay tax deferrals and re-engage staff who have been furloughed.
Companies should therefore think about embedding as much of the cost-saving gains made in their initial crisis response as possible into their day-to-day operations, as well as opening dialogue with key suppliers and financial stakeholders on repayment plans that support a recovery on both sides of the table.
“It will be essential to model the medium to long-term financial impact of a market that may ultimately operate on reduced activity levels, and importantly, assess the cost base required to support that, as it is highly unlikely to look the same as the pre-crisis operating model.”