The impact of COVID-19 has seen a sharp drop of £189 million in insolvent business debt during the last quarter, according to corporate distress data analysts Red Flag Alert.
The firm’s ‘Write Off Report’ shows that the UK’s total levels of insolvent business debt at 30th June 2020 were £1.577billion, down 10.7% from £1.766bn at the end of March.
At the same time, insolvent debt in the hotel and accommodation sector increased from £5.9million to £12.4million, while travel and tourism saw levels of bad debt change from £5.1million at the end of March to £9.1million at 30th June 2020.
During the same period last year, hotels and accommodation saw insolvent debt decrease by 26.3% and travel and tourism experienced a 47% increase in bad debt.
Mark Halstead, a partner at Red Flag Alert, explains: “Total insolvent debt has declined because struggling companies have been able to draw on financial support from the Government and provided with more breathing space by businesses they owe money to. This has created a reverse-effect for total debt.
Mark Halstead adds: “The figures in the hotels and accommodation, and the travel and tourism sectors, are much more extreme, but this is due to very low base levels of existing insolvent debt in each of these closely aligned industries. The key concern here is that these sectors are showing limited signs of recovery from the pandemic, with the end of the prime summer season very close. We can expect this to lead to high levels of business failures and payment defaults during the next six months.”
Other sectors that saw rises in insolvent debt include retail, where levels during the last quarter increased by £6million (12.6%), while the manufacturing sector saw a 17.4% increase from £89.6m to £105.2m. Logistics saw a marginal change of +0.84%, taking debt levels to £62.3m at the end of June.
Mark Halstead concludes: “This quarter’s Write Off figures have been skewed by the COVID-19 measures introduced by Government and positive steps quickly taken by companies during lockdown. We’re now coming to the end of Government support and can expect businesses to enter a more protectionist mode as they fight for survival. With this in mind, it’s likely that insolvent debt will see a sharp upwards trajectory over the next six months.”
Download The Write Off Report.