A bankruptcy storm is looming, experts warn

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Experts predict the brunt of the pain will be felt in retail, hospitality and construction.

Glen Flannery, restructuring and bankruptcy partner at City law firm CMS, says: “We have already seen a spike in defaults in more vulnerable sectors such as construction and energy retail.

“The impact in other sectors has been less pronounced, but corporate failures have generally trended upwards as government support related to the pandemic has been withdrawn.”

FRP’s Rowley believes the crisis could be particularly acute in the retail and hospitality sectors. He says: “Hospitality has bounced back from the pandemic, but consumers will look to tighten their belts in the fall, especially if energy bills start to rise again in October.”

Flannery from CMS agrees. “Many consumer-facing businesses, such as hospitality and leisure, are seeing a resurgence of pent-up demand following the lifting of Covid restrictions.

“However, this is predicted to ease as severe pressure on household disposable income increases.”

But Quantuma’s Bonney believes the economic hardship could be so widespread that the impending storm could be “sector agnostic.”

“There are many weak points in the SME [small and medium-sized enterprises] end of the market. Any business that relies heavily on energy is also particularly vulnerable.”

Britain’s small businesses have also been addicted to cheap debt during the pandemic. Late last year, the bank said a third of UK small businesses were classified as highly indebted, more than double the pre-pandemic level.

SMEs, many of which would not have met pre-pandemic borrowing requirements and would never have borrowed before, accounted for around two-thirds of the £79 billion surge in UK corporate debt between late 2019 and the first quarter of 2021, the bank warned.

So how bad could it get – or rather, how good could it get for bankruptcy and restructuring practitioners? Bonney is blunt: “There’s a storm coming.”

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