With Midas Construction set to appoint Administrators, Scott Bebbington, Senior Manager at PKF Francis Clark highlights how this could affect you or your clients’ business and…
Although the level of insolvencies continued to remain low in 2021 due to the Government support and protections made available to businesses, 2021 was still an interesting time for the world of Business Recovery and Insolvency. Here is Senior Manager Scott Bebbington’s take on the hot topics affecting the sector in his A to Z of Insolvency from 2021.
A is for audit opinions; a number of high-profile cases are ongoing where Insolvency Practitioners are pursuing auditors for significant losses arising due to ‘inadequate or incorrect audit opinions’, including Carillion and Patisserie Valerie.
B is for Bounce Back Loans (BBLs); £47bn was lent under the scheme which has been a vital lifeline for many businesses. Repayments started in 2021, now the fallout and concern over how much of this £47bn will be lost as a result of fraud or credit losses is a huge talking point.
C is for Company Voluntary Arrangement (CVA) challenges; a number of high profile challenges to CVAs were made this year, (including New Look and Caffe Nero), as tenants, particularly those on the high street, looked to CVAs to reduce rents and exit non-profitable leases.
D is for Derby County, the second English Football League club to enter insolvency since the pandemic started, the search for a new buyer for the club continues.
E is for Energy Crisis, 23 energy suppliers entered into an insolvency process since 1 September 2021 amid soaring energy prices, but there is some concern many more suppliers may be at risk.
F is for Fraud, the vital pandemic related support has been also been subject to a number of unscrupulous individuals making fraudulent claims, in addition to the estimate of £5bn fraudulent BBLS claims, HMRC estimate that there could be £5.8bn of fraudulent and erroneous claims under CJRS, SEISS and Eat Out to Help Out.
G is for Greensill Capital; the Administration of Greensill is considered by some to be the UK’s biggest financial scandal in a decade.
H is for HMRC, who have adopted a supportive approach to those businesses struggling to repay tax debts who engage with them. This has been vital but has led to a significant increase in the number of businesses subject to Time To Pay Arrangements which may have longer term implications.
I is for the Insolvency Gap; the artificial reduction in insolvencies since March 2020 cause by the support and protections introduced. Comparing post March 2020 insolvencies to the pre-March 2020 averages the Insolvency Gap stands at around 8,100 businesses.
J is for Judgments; County Court Judgments (CCJs) are an indicator of significant financial distress. The number of businesses receiving CCJs and the average value of these CCJs is rising, indicating levels of financial distress are getting worse.
K is for Kwasi Kwarteng; the Business Secretary has been very busy this year from working with HMRC to support businesses to working with The Insolvency Service as part of their crackdown on directors dissolving companies to evade debts. He could be a busy man again in 2022.
L is for Late payments; figures released earlier this year suggested Small and Medium Enterprises (SMEs) were chasing nearly £50bn in late payments, a huge strain on potentially already stretched cash flow.
M is for Moratorium on Landlord forfeiture proceedings; the moratorium has been extended to March 2022, giving tenants protection and breathing space at the cost of increasing tenant rent arrears.
N is for Net debt to HMRC; the most recent quarterly report from HMRC shows net debt to HMRC has dropped significantly from £69.5bn in September 2020 to £44.1bn in September 2021, this is despite the number of businesses subject to TTPs to pay tax debt increasing.
O is for Official Receiver/The Insolvency Service, who have also been very active this year between issuing a legal claim relating to Carillion audits to their ongoing battle against fraudulent use of pandemic related support, seeking disqualifications and compensation orders in these instances.
P is for Planned Redundancies; HR1 submissions to The Insolvency Service warning of potential redundancies have remained very low this year and well below pre pandemic levels, the question is will they remain low?
Q is for Queen’s Property Group or Crown Estates; the group saw profits fall by 21.9% in the last financial year and they offered £53.7m in targeted financial support to tenants struggling to pay rent¹.
R is for Recovery Loan Scheme; the scheme was designed to bridge the gap between pandemic related loan schemes and more traditional lending. The only figures I have seen for the scheme are up to 25 October 2021 showing £1.06bn was lent to 6,190 businesses – a fraction of that lent under other schemes².
S is for SME debt; figures from the Bank of England (BoE) suggested one third of SMEs are highly indebted, double that at the start of the pandemic. The BoE also warn that whilst this may be manageable in the short term it will likely lead to insolvencies in the long term.
T is for Tenant Rent Arrears; figures suggest the level of commercial tenant rent arrears now stands at a whopping £9bn, despite many of these businesses returning to close to normal trading conditions. Addressing these arrears are fundamental to economic recovery and an arbitration scheme is being introduced to help solve this.
U is for Unscrupulous Directors; that’s right, those who have misused pandemic related support and have been disqualified from being directors as a result. I started tracking disqualifications related to these in September this year and already saw 34 disqualifications for misuse of support between September and November 2021.
V is for Virgin Active; a fascinating case of the first use of the new Restructuring Plan to restructure landlord liabilities and a significant test of the ‘Cross Class Cram Down’ as some classes of creditors did not approve the plan.
W is for Winding Up Petitions; there has been an increase in petitions since the protections ended in September but compulsory liquidations remain well below pre pandemic levels. The petition debt limit has also been temporarily increased to £10,000.
X is for (e)Xtending temporary support and protections; expected to end much earlier than they actually did the temporary insolvency measures and key schemes like the Job Retention Scheme continued to keep insolvencies low and we are yet to experience the significant increase in insolvencies many anticipated as these were withdrawn.
Y is for Yearly Statistics; with December 2021 figures yet to be published there have been 12,566 corporate insolvencies in the year³. There would need to be around 4,200 insolvencies in December for the figures for 2021 to be in line with pre pandemic averages which is unlikely.
Z is for the twilight Zone; the period from when the directors knew or ought to have known their Company was insolvent and it actually entering insolvency. Although other means of attacking actions of directors were always available, the end to the suspension on personal liability for wrongful trading should focus directors’ minds during this Zone, prompting them to take proper independent financial advice.
What will 2022 have in store? I suspect a number of the above topics could well feature again.
¹ The Crown Estate Integrated Annual Report and Accounts 2020/21 https://www.thecrownestate.co.uk/media/3918/2021-annual-report-interactive_v2.pdf
² Coronavirus business support schemes: Statistics https://researchbriefings.files.parliament.uk/documents/CBP-8938/CBP-8938.pdf
³ The Insolvency Service Monthly Insolvency Statistics https://www.gov.uk/government/collections/monthly-insolvency-statistics
Senior Manager, Insolvency
PKF Francis Clark
Tel: 07443 786602