U.K. Bankruptcies Set to Rise After Lockdown Measures End

Bankruptcy experts say that the number of U.K. insolvencies is likely to rise sharply as further evidence emerged of the damage being inflicted by the coronavirus lockdown.

The warning came after Insolvency Service figures showing that fewer companies went bust in the first quarter were dismissed as the calm before the storm.

In a separate release, the Office for National Statistics said two-thirds of U.K. firms have now applied for funds under a government program that pays 80% of the wages of furloughed workers. More than half of companies that continue to trade reported a drop in turnover between April 6 and 19, with one in four saying it had fallen by more than half.

“We should expect a very significant rise in insolvencies, especially once the lockdown starts to be lifted, and government support initiatives such as furloughing start to be withdrawn,” said Jo Windsor, a restructuring and insolvency partner at Linklaters. “Creditor pressure will grow and it will become clear that, in a world of social distancing, many businesses will no longer be viable in their existing form.”

About 3,900 companies filed for bankruptcy across England and Wales in the first three months of the year, a decline of 8.5% from a year earlier. However, they mostly predate the impact of coronavirus on the economy.

Leniency Urged

Along with other nations, the U.K. has proposed looser insolvency rules to allow firms to continue trading even if they can’t pay their debts due to the virus-induced lockdown.

Wage subsidies are part of a suite of measures introduced by ministers to allow businesses and workers to stay afloat during the crisis, and help fuel the recovery afterward. The government is currently weighing options for easing the lockdown, although officials have warned it will not be lifted any time soon.

The so-called Job Retention Scheme means companies in trouble can avoid firing workers. It’s the most popular of the U.K.’s interventions, and the most expensive. On Thursday, the Office for Budget Responsibility put the cost at 49 billion pounds ($61 billion) in the current fiscal year, accounting for almost half of the 104 billion-pound total cost of the government’s policy response so far.

The collapse in revenue and employment caused by the coronavirus is set to push many more firms and people into bankruptcy, according to Thomas Pugh, an economist at Capital Economics.

Overall, about 110,000 businesses could go bust over the next few years, Pugh wrote in a note to clients Thursday. That would be roughly the same level as in the global financial crisis and could hold back the economic recovery, he wrote.

To contact the reporters on this story:
Katie Linsell in London at klinsell@bloomberg.net;
David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story:
Vivianne Rodrigues at vrodrigues3@bloomberg.net

Andrew Atkinson

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