Accommodation and food service sectors see 53% drop in insolvencies

The accommodation and food services sectors have seen a 53% drop in insolvencies from May to July 2020, compared to the same period in 2020.

According to RSM, some 597 insolvencies were recorded by the Insolvency Services for May to July 2019 and 279 for the same period this year.

However, it said corporate debt levels have increased “dramatically”. Some 9% of all Coronavirus Business Interruption Loans (CBILs) have been taken out by businesses in the accommodation and food sector, despite the sector making up circa 3.4% of the overall economy.

Similarly, the sector has taken up 8% of Bounce Back Loan Schemes (BBLs) worth over £3.1bn.

RSM said these figures don’t factor in the additional support from the Coronavirus Job Retention Scheme which has been high in this sector and also other lending. Bank of England figures show that lending to UK SME’s in June 2020 was nearly 16 times higher than it was in April 2020.

Gareth Harris, restructuring advisory partner at RSM, said: “Businesses are  struggling despite government support, as we see from the recent employment figures and the latest from the ONS which says that one in 10 firms estimated they had a ‘moderate’ risk of insolvency.

“With the end of temporary relief from the Corporate Insolvency & Governance Act and the rent moratorium in September, followed by the end of the furlough scheme in October, the buffer for many companies is gradually being withdrawn.

He added: “We are already seeing major job losses across the high street as companies look to restructure their businesses so they can keep adjust to new trading conditions.

“A lot of companies are having to take a hard look at their options, but the good news is that there are options.  The refinance market is opening up and corporate buyers and Private Equity are looking for deals and investments and with support from stakeholders, restructuring options such as Company Voluntary Arrangements are on the table.”