A debt solution may not be suitable in all circumstances. Fees may apply and will affect your credit rating

I have just been reminded of a blog I wrote in 2009 entitled “Dig deep the worst is yet to come” because of the trickle down affect of the crunch of 2008/09.

I was right. Personal insolvencies peaked in 2010 at 135,089 compared to 106,349 in 2008 and 133,664 in 2009. Corporate insolvencies increased from 14,834 in 2007 and peaked at 25,633 in 2009.

2009 compared to 2020

  Oct 2009 Jan 2020
Total UK Personal Debt £1,457BN £1,680BN
Consumer Debt 232BN 224.9BN
Average Consumer Debt per adult £4,845 £4,264
Adult working age benefit claimants 5.8M 6.8M
Public Sector Debt and %age of GDP £804.4 BN


£1,617.6 BN


Number of unemployed 2.47M 1.34M

 The January 2020 figures predate the lockdown effects on businesses, jobs and the economy.  According to a report in the Times on 29 March 2020, “Unemployment in Britain is set to more than double in coming months, despite government efforts to incentivise employers to keep staff. Economists warn that the rise in the second quarter of the year will be even sharper than during the financial crisis in 2008.”

Nomura the investment bank predicts that unemployment will rise to 8% of the working population in the April to June 20 quarter compared to 3.9% in January. They state that this will mean a further 1.4M unemployed increasing the total to 2.75M.

A very gloomy outlook – March 2020

According to an article in the Guardian (20 March 2020)  “Coronavirus credit crunch could make 2008 look like ‘child’s play’”. The article features interviews with investors and stock market analysts who warned that a worldwide credit crunch triggered by the coronavirus will set in motion a wave of corporate bankruptcies that will make the global financial crisis look like “child’s play”.

They feared that the shutdown if it lasted for months could mean that internationally companies that have “gorged” on cheap money for the past decade could face failure due to a huge spike in borrowing costs on international money markets.

Businesses that are vulnerable

The businesses that are extremely vulnerable are those who have faced a sudden loss of revenue including airlines, tourism-related businesses and carmakers.

Rating agencies were also warning that cash conservation methods by Petroleum and other energy suppliers may not be sufficient to prevent credit rating downgrading. Apart from reduced demand caused by the lockdown, talks to cut oil production between Russia, Saudia Arabia and other oil producing nations including USA floundered. It was hoped that agreement could be reached to cut production to support prices. Russia refused resulting Saudia Arabia threatening to increase output to put pressure on Russia and prices went into a tailspin affecting all producers particularly the US “shale oil” Industry.

Corporate Borrowing Market

The problem was looking particularly dire for large corporates who it was feared would struggle to refinance debt due to a repeat of the sudden change in credit conditions that sparked the 2007/8 credit crunch. The prospect of no revenue for months mean creditworthiness will decline and cut off access to funding. It was reported that there was in excess of $2TN worth of corporate debt that needed to be rolled over this year which was going to be extremely problematic as markets had frozen.

It was also report in the Guardian that managers of several large property funds banned investors from withdrawing their money. In a sign the crisis could spread through all types of assets, they said the coronavirus crisis had made it impossible to value the buildings they own.

 US Government Debt

According to the Financial Times a number of banks tasked with supporting US government debt – one of the safest and most easily traded assets in the world – refused to bid which was reported to be extraordinary and unprecedented. This has forced the US Central Banks to inject trillions of dollars into bond markets in a dramatic attempt to prevent a repeat of the 2008 credit crunch.

Governments and companies use bond markets to borrow money from investors. In the 2008 credit crunch, banks stopped lending to one another as panic spread through the system. The Fed warned it had identified “highly unusual disruptions” amid widespread concern over the unfolding economic damage from Covid-19.”

Credit Crunch Averted?

Despite record numbers of people filing for unemployment benefit in USA and vast numbers of American businesses closed, the S & P 500 was 25% up (9 April 2020) on its recent low in mid March. The New York Times reports investors now seemed optimistic that following investment programs announced by Washington of $2.3TN by The Federal Reserve, that major companies will be able to emerge with relatively low damage to their profitability. The investors optimism is based there being a speedy recovery no more than 3 to 6 months. The pricing also assumes that the major job losses and drops in income will not cause mass closure of businesses.

Yesterday 12 April OPEC managed to secure a deal to cut oil supply to 10% of global supply during May and June. The cuts will be more than double of those made during the global financial crisis. The BBC quote independent oil market analyst Guarav Sharma who adds “The announcement can stem the bleeding, but cannot prevent what is likely to be a dire summer for oil producers with the potential to drag oil prices below $20 (£16; €18).”

Continuing Challenges

The lockdown means that economies have to be put into hibernation at immense cost to those economies. Failure to embrace those costs now will produce far worse impacts down the line. According to a survey by International Trade Union Congress of the 86 countries surveyed only 21% are providing sick leave for all or some of it’s workers. Some other stark findings are:-

  • Only 12% of nations provide income support or cash payments to those affected by lockdowns
  • 50% of countries are providing free healthcare
  • Bail out funds for struggling businesses 29%

Dozens of emerging economies face financial and humanitarian distress as commodity prices and export earnings plummet. The World Trade Organisation economists forecast that world trade volumes will fall be between 13% and 32%.  According to the Guardian an optimistic scenario would be worse than the 12% drop seen at the height of the 2008/09 crunch.  The pessimistic scenario would be on par with the fall in world trade seen during the first three years of the Great Depression, from 1929 to 1932.

The challenges ahead are significant. Governments must plan for the aftermath and put in place foundations for a strong and socially inclusive recovery warns the Guardian.

Business Debt Help

Despite the government’s initiatives which include deferral of VAT and PAYE, Business interruption loans and the employee job retention scheme, there will be many thousands of businesses that will struggle to recover. Markets will take some time to recover as budgets will still be restricted.

The insolvency/recovery industry need to be ready to help negotiate payments plans, informal settlements and formal arrangements – CVA’s.

Informal Payment Arrangements/Formal Arrangements – Company Voluntary Arrangements, Partnership or Individual Voluntary Arrangements

If your business is able to tick over in terms of covering wages and overheads but is struggling to pay suppliers in full, it is possible to put forward payment arrangements to creditors either in an informal arrangement or using Voluntary Arrangements for companies, partnerships or self employed businesses.

Voluntary Arrangements allow the business to retain its assets and continue trading but allows payments to unsecured creditors to be reduced so the business pays a monthly contribution towards its debt. The payments go into the arrangement and these funds are passed onto creditors by way of periodic dividends – usually quarterly.


Administration is an option for a company facing financial strain or creditor pressure.  In many cases, a company which enters Administration can preserve the core business, and maintain continuity with its customers, and staff.

A company in Administration is legally protected from the commencement (or continuation) of any action against it.  This protection provides ‘breathing space’ and gives the company’s Board time to put together a plan of action which could include restructuring, assessment of cash-flow and future plans, or even marketing the business for sale.

A sale of the business can be agreed before the Administration.  This is widely known as pre pack administration and involves a sale to (all, or a number of) the existing directors operating a newly formed company. In any case, a sale of the business must be viable and a buyer will need to demonstrate that the newly formed company has a good prospect of success.

Liquidation “CVL”

A CVL is likely to be the most suitable option if a company has debts it cannot afford to repay and there is no longer a viable business to be saved.  Unfortunately there are so many companies at the moment with their businesses struggling with limited trading or shutdown completely. Hopefully, the lifelines strategies detailed above will help you keep your business ticking for the next few months whilst the nation aims to keep themselves safe.

If you have any queries please fill out our Contact Formand we will be in touch.  Alternatively, call our FREE ADVICE LINE on 0800 781 0990.  Our team has extensive experience in dealing with solvent and insolvent businesses and can arrange an initial consultation at no cost, usually on the same day.

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