Accommodation And Food Service Sector Buoyed By Government Support With A 53 Percent Drop In Insolvencies

The accommodation and food services sectors have taken full advantage of the Government support available during lockdown which has contributed to a drop-in insolvencies by 53 percent from May to July 2020, compared to the same period in 2020. 597 insolvencies were recorded by the Insolvency Services for May to July 2019 and 279 for the same period this year.

However, corporate debt levels have increased dramatically. 9 percent of all Coronavirus Business Interruption Loans (CBILs) have been take out by businesses in the accommodation and food sector, despite the sector making up circa 3.4% of the overall economy. Similarly, the sector has taken up 8 per cent of Bounce Back Loan Schemes (BBLs) worth over £3.1bn.

These figures don’t factor in the additional support from the Coronavirus Job Retention Scheme which has been high in this sector and also other lending. Bank of England figures show that lending to UK SME’s in June 2020 was nearly 16 times higher than it was in April 2020.

Gareth Harris, Restructuring Advisory Partner at RSM commented: ‘Businesses are struggling despite government support, as we see from the recent employment figures and the latest from the ONS1 which says that one in 10 firms estimated they had a ‘moderate’ risk of insolvency.

‘With the end of temporary relief from the Corporate Insolvency & Governance Act and the rent moratorium in September, followed by the end of the furlough scheme in October, the buffer for many companies is gradually being withdrawn. We are already seeing major job losses across the high street as companies look to restructure their businesses so they can keep adjust to new trading conditions. A lot of companies are having to take a hard look at their options, but the good news is that there are options. The refinance market is opening up and corporate buyers and Private Equity are looking for deals and investments and with support from stakeholders, restructuring options such as Company Voluntary Arrangements are on the table.

‘There is a call to government to extend the temporary coronavirus regulatory relief – the Corporate Insolvency and Governance Act – to three months beyond 30 September. This will allow these businesses more time to put in place solutions and adjust operating models ahead of an anticipated and much needed pick up in trading in the crucial lead up to Christmas.’