North East business insolvencies remained low in April, says KPMG

The number of businesses entering administration in the North East and Yorkshire remained steady in April as Government support measures appeared to be giving firms headroom to deal with collapsing demand in the face of the coronavirus pandemic.

New analysis shows from KPMG shows that eight North East and Yorkshire businesses fell into administration last month, which is not as bad as first feared by the global accounting firm.

The first quarter of 2020 saw a 27 per cent increase in business insolvencies across the region compared to the final quarter of 2019, with 47 administrations recorded between January and March.

However, when compared to the first quarter of 2019, administrations are actually 11 per cent lower than they were a year ago, when 53 insolvencies were recorded.

James Lumb, head of restructuring for KPMG in the North East, said comfort can be taken from the fact that there hasn’t yet been a deluge of companies falling into administration across the region and puts this down to a combination of Government support and a positive approach from lenders and creditors.

“This has given organisations vital breathing space in the early days of this crisis,” he said.

“As we look forward, the old adage that ‘more companies fail coming out of a recession than fail going into it’ will be front of mind for many executives who now are trying to forward plan their exit from lockdown.

“One of the biggest challenges facing businesses in our region is mapping how demand will build as lockdown rules are eased. North East businesses will need to take care not to fall into the classic trap of scaling up too quickly.

“Many will have burnt through cash reserves during the lockdown period and, while some will have taken advantage of the various government support packages available, they will have relied upon short term support from creditors.”

James continued: “Ramping up trade will require re-engaging staff who have been furloughed and careful management of suppliers and landlords. Businesses will also need to plan for repayment of tax deferrals and additional loans.

“Companies should therefore think about embedding as much of the cost-saving gains made in their initial crisis response as possible into their day-to-day operations, as well as opening dialogue with key suppliers and financial stakeholders on repayment plans that support a recovery on both sides of the table.

“Finally, while it will be essential to map out the medium to long-term financial impact of a market that may ultimately operate on reduced activity levels, management teams in businesses that have stepped down operations have a unique opportunity to think about operating models, including how they approach a “new normal” market and how costs are structured.”