COVID-19 'Pushes 600K Businesses To Brink Of Insolvency'

By Lucia Osborne-Crowley
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Law360, London (May 6, 2020, 2:42 PM BST) -- Up to 600,000 British businesses are heading toward insolvency after being hit hard by the economic fallout from the COVID-19 crisis, a think tank said Wednesday.

The Centre for Economic and Business Research found that one in ten businesses said there is a "high risk" they will enter into insolvency as a result of the downturn created by the coronavirus outbreak, which has killed more people in Britain than anywhere else in Europe and has battered the domestic economy.

The findings are set out in the think tank's Business Distress Tracker survey, conducted with market researcher Opinium, which surveys 500 senior decision makers in U.K. businesses of all sizes every fortnight.

"The results of the Business Tracker provide the first glimpse of the deep and long-term scars that the coronavirus crisis is set to inflict upon the U.K. economy," senior economist Pablo Shah said. "More than a half a million businesses are at a high risk of insolvency."

The think tank also found that just over half,  51%, of the country's businesses said there is at least "a small risk" they may face insolvency as a consequence of the public health crisis. That equates to almost three million businesses, CEBR said.

More than 250,000 British businesses said they will go under if the lockdown conditions continue for another month. But that figure could soar to one million businesses if lockdown continues for another three months, the survey of companies of all sizes found.

Companies told CEBR they expect it will take them an average of six months to bounce back and reach pre-crisis production levels. But one in six businesses said they will need at least a full year to recover.

CEBR said this undermines any hopes of a swift economy recovery in Britain, adding that the country is not likely to return to 2019 gross domestic product levels until 2022.

Profits were down almost 30% in the first month of lockdown, the study found.

"These figures dash hopes of an immediate bounce-back once restrictions are lifted, and instead point to a prolonged period of subdued output that is set to last for a period of years, rather than months," Shah said.

The U.K. government has acted to help prevent mass failures by introducing emergency changes to overhaul insolvency laws and give "breathing space" to companies hit by the coronavirus crisis. Laws that make it illegal for a business to trade when it is insolvent are set to be suspended, business secretary Alok Sharma said in March.

Struggling British companies are at war with insurers over whether business interruption policies should cover lost earnings from March 24, when the U.K. ordered all non-essential companies to close.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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