Low levels of insolvency figures in August mask soaring redundancies and companies unable to pay make redundancy payments

The UK insolvency statistics for August 2020 show that corporate insolvency levels remain at very low levels, some 43 percent lower than in August 2019 (1,369 August 2019,  778 August 2020).

The sharp and sustained decline in insolvencies since the start of the pandemic is the direct result of the huge level of support provided by the UK government via: the CJRS scheme; government backed loans; and the prohibition of Statutory Demands and Winding Up petitions. 

However, even these actions have not been sufficient to stem the tide of redundancies being announced and planned, as supported by the ONS statistics today. 

Gareth Harris, Restructuring Advisory Partner at RSM commented: ‘With many of the headlines being grabbed by the redundancy announcements by large companies, the real volume of redundancies is now being seen in SME’s as they deal with recent losses, local restrictions and plan for a potential second wave. 

‘As employers of more than 60 percent of the UK working population, SME’s are now facing the realities of trying to continue trading without the furlough scheme, no further loan availability and sometimes insufficient cash to even make redundancy payments.  This can leave some employees in limbo: unable to be paid their normal wages; unable to be paid redundancy payments; and unable to claim Universal Credit as they are technically still employed.  We are working with one company currently who has over 150 staff in exactly that situation and where the only solution will be insolvency.  Even then it will be 6-8 weeks after insolvency before staff are likely to receive payment via the Redundancy Payments Service. 

‘This is the true definition of a zombie company and if the government is reviewing further support measures, we would urge them not to forget about the many people caught in this unfortunate position.’