At least 3,300 companies could be part of insolvency wave

According to accounting firm UHY Hacker Young, this is a conservative estimate of the stockpile of insolvencies, which it defines as the gap between the number of business insolvencies in an average year and the artificially low number of insolvencies in the last year.

There have been only 6,419 business insolvencies between April and October this year, a 36 per cent reduction from the 10,076 during the same period last year.

The accounting firm said that insolvencies among the some of the hardest hit sectors like the construction, hospitality and retail sectors are far below trend this year, despite facing extremely difficult trading conditions during the pandemic.

It said lockdown restrictions have forced many of these businesses to close for much of the year, and the when the moratorium ends, it’s likely these businesses will represent a large proportion of insolvencies.

UHY Hacker Young partner Peter Kubik said the insolvency gap suggests there are thousands of companies only being kept alive because HMRC, landlords and other creditors are prevented from winding them up.

“This will continue as long as the government keeps the music playing and the punch bowl topped up but at some point that will have to come to an end,” Mr Kubik said.

“The ban on winding up petitions and other forms of government aid are suppressing real insolvency rates but the true damage will be exposed when the tide goes out.

“Hospitality and retail businesses in particular have been severely impacted and are at risk of a large volume of insolvencies in the new year.”