A fresh tightening of coronavirus restrictions threatens to force businesses back into hibernation just as some were beginning to see light at the end of the tunnel. By contrast, bankers specialising in restructuring struggling companies have been so busy, they are calling their old bosses out of retirement.
“You’re seeing a lot of old friends who disappeared in 2012 suddenly reappear again on the screen to say hello,” says Jo Windsor, an insolvency lawyer at Linklaters. “A lot of the old hands are being pulled back in by the larger banks and institutions.”
So far, the huge wave of insolvencies predicted earlier in the crisis has not arrived. Government support for the private sector in the form of furloughing, state-backed loans, business rates holidays, grants and tax deferrals has staved off a surge in firms going bust.
Official figures released last week show the number of company insolvencies in August was 43pc lower than in the same month last year.
In a health warning accompanying the numbers, the Insolvency Service said that factors such as a temporary ban on winding up petitions are likely to be driving the low number of businesses going under, despite the wider economic damage caused by the Covid pandemic.
“The stimulus and support is definitely doing its job in avoiding a tsunami of unnecessary or unplanned corporate challenges,” says Geoff Rowley, chief executive of FRP Advisory, the restructuring and financial firm that has won work on the administrations of Debenhams, Bonmarché and Carluccio’s.
The dearth of formal company insolvencies is masking the pain companies are already enduring. But that could change very quickly with the state due to stop paying the wages of furloughed workers at the end of October.
Limits on group socialising under the “rule of six” regional coronavirus restrictions and the threat of a second national lockdown will make it even tougher for businesses on the brink to avoid the worst.
“I think there will be a spike in formal insolvencies towards the back end of this year among those businesses that have been holding on and can’t carry on [and] a gradual increase in formal insolvencies over the next two years,” says Carl Jackson, chief executive of Quantuma, a restructuring firm.
Advisers say they are already extremely busy helping firms with “informal” restructuring through negotiations with landlords, cutting jobs and other measures to cut costs.
The willingness of banks and other creditors to take a pragmatic approach to companies that owe them money has so far helped avoid further corporate destruction.
For now, many creditors believe they will recover more of the money they are owed if they allow companies to keep trading rather than pushing them over the edge into insolvency and being at the back of the queue waiting for repayment, experts say.
An abundance of private capital has allowed large firms from Compass Group, the caterer, to Informa, the exhibition organiser, to tap equity markets and raise debt to bolster their balance sheets. “There seems still to be new money around,” says Windsor.
By contrast, small and medium-sized enterprises (SMEs) without access to equity and bond markets could struggle more immediately, particularly as the bounce back loan scheme, where borrowing is fully guaranteed by the Treasury, is set to close to new lending on Nov 4.
Business lobby groups have called repeatedly for further support from the public sector to help avoid a cliff-edge when the furlough scheme is wound down at the end of October.
More than 1.7m retail and hospitality workers were still furloughed at the end of July. There is speculation that Chancellor Rishi Sunak will extend wage support for the hardest hit sectors, which could also include leisure and travel.
“We would probably have a reasonable expectation that the Government might look to do something very targeted, but it is difficult to conclude they will just extend that for all companies,” says Rowley.
Delaying the October cut-off would be welcomed by employees who risk losing their income, but it may not be enough to save businesses that still cannot get back up and running due to social distancing measures.
While redundancies cut overheads, the up front cost of paying redundancy packages could be enough to send some firms to the wall before they can reap the benefits.
“Say you’re in manufacturing and have been in existence for decades and you’ve got a really loyal workforce. If you start getting into the territory of people being with you for 10 years or so, making any one person redundant can cost you tens of thousands pounds,” explains Rowley.
Support has already been extended in the rental market. Last week, the Government extended until the end of the year its temporary ban on landlords evicting businesses for failing to pay rent during the pandemic. Restrictions on landlords recovery arrears from commercial tenants will also be extended. Shops, pubs and restaurants welcomed the move, but Rowley warns that it may simply store up more problems.
“All that does at one level is just defer the problem once more because the moratorium is not in any way stopping that liability increasing,” he says.
In the meantime, landlords claim companies such as Boots or JD Sports will take advantage of the rules, even if they can afford to pay on time.
“It is debatable that extending the eviction moratorium is the right answer for the leisure and hospitality sector,” says Christian Mole, head of leisure and hospitality at EY. “A continuing inability to collect rent will inevitably have a less visible but still marked adverse impact on landlords, real estate funds and eventually private investors and savers.”
Calls from business for the Chancellor to extend spending on emergency business support measures will grow louder if the nation heads for a second national lockdown.
But for many firms, further injections of public money may only delay the inevitable. One restructuring insider says he expects a “protracted doom glide” over the next two to four years as companies struggle to survive the recession and many eventually succumb to inevitable collapse.
Bank bailouts and low interest rates helped weak firms to survive the 2008 crisis, leading to fears of a rise in “zombie” companies – particularly in the restaurant and leisure sector, where supply outstrips demand.
For weak companies hoping to survive another recession, stop-start economic shutdowns may not be so benign.