HM3 Legal Guest Writer

As far as business contingency planning goes, defending your company against pandemic-related economic pressures may not have made it onto your list, although the arrival of Spring 2020 and the coronavirus pandemic may likely have changed this. Against the backdrop of the Ukraine War, the cost-of-living crisis and the death of Her Majesty, Queen Elizabeth, the longest reigning British monarch, a period of economic recovery is now underway to remedy the damage caused by the pandemic.

We assess the business landscape by ranking which sectors are thriving and the number of SME jobs in danger using business distress data gathered by Real Business Rescue, business turnaround and liquidation experts, part of Begbies Traynor Group.

562,500 SMEs in distress endangering 2.6 million jobs

The business distress index for Q3 2021 found 562,500 small-to-medium enterprises (SMEs) in financial distress, a 10% drop compared to Q4 2020 which aligned with the second Covid-19 lockdown. Significant financial distress refers to companies with minor CCJs of less than £5k filed against them because of deteriorating financial health, such as poor working capital and shrinking profit margins.

To answer how Covid-19 impacted SME distress levels on a regional scale, the North West ranked fourth in line, followed by the South West, East of England and Yorkshire. In the North West, around 54,350 SMEs showed sign of financial distress which is a 13% quarterly decrease.

Sectorial data shows an overall decrease in distress levels. Bars and restaurants experienced an 8% decrease with 183,947 jobs in danger in Q3 2021, compared to 200,692 in Q2 2021. The Health and Education sector experienced a 10% decrease, the support services sector saw a 13% decrease, 17% for manufacturing and 17% for telecoms and IT.

The sector with the largest decrease in distress levels (22%) was general retail.

How are businesses surviving without Covid-19 government support?

SMEs took their first independent step without the aid of Covid-19 government support following the end of the Coronavirus Job Retention Scheme (CJRS) and Bounce Back Loan Scheme (BBLS). The safety braces around financially distressed businesses were also removed after temporary insolvency measures which restricted winding up petitions lapsed. As such, businesses struggling to recover from the pandemic may require additional support to survive which we run through.

• Time to Pay Arrangement – A Time to Pay arrangement creates a gateway to negotiating tax repayments with HMRC. Formalising an affordable payment agreement can grant more time to pay, free up cash flow and increase existing working capital.
• Company Voluntary Arrangement (CVA) – A Company Voluntary Arrangement is a formal insolvency procedure designed to help debtors enter a formal payment plan with creditors. If a business is in a fragile and time-sensitive position, a Fast Track CVA can accommodate faster negotiations with creditors to aid a speedy recovery.
• Alternative finance – If a business requires a cash injection to boost cash flow, facilitate the purchase of specialist equipment/machinery or fill the gap between payments, commercial finance can provide a tailored solution.

The routes available to businesses will vary depending on financial health and the possibility of business recovery. As the economy adjusts to new pressures following the passing of the pandemic, it’s time for them to regain control and reaffirm their commercial position.