What to watch out for in 2020
2020 is going to be an extraordinary year as we all get to grips with the hugely changing political and economic landscape. Hopefully, Brexit will feature less in daily conversations!
2019 has been another difficult one for the retail/leisure sector especially. I list, as a reminder, just a few of the well-known brands which have fallen victim to insolvency this year;
Thomas Cook, Arcadia, Clintons, Debenhams, Mamas & Papas, Mothercare, Links of London, Jessops, Bathstore, Jack Wills, LK Bennett to name but a few. They have all cut back on stores by entering an insolvency process either going into administration or using company voluntary arrangements (CVAs) to cut stores and employment numbers. Debenhams' CVA was notable for being challenged by landlords who felt they were unfairly prejudiced against by the CVA proposals. This section 6 application was lost so opening the doors for further landlord only CVAs. Will landlords now challenge by voting such CVA proposals down?
Thomas Cook was by far the biggest insolvency event of the year and it would seem its failure to reduce debts left it vulnerable to even a slight downturn in business.
What to watch out for in 2020
So, we can assume that we will definitely leave the EU in 2020?
Difficult trade talks are likely to contribute to uncertainty and with the possibility of a no deal exit at the end of the year may dent confidence.
Retail will no doubt continue to struggle as rates, rents and minimum wage rises, with worried consumers, and online shopping taking its toll. We have been saying this for a couple of years now!
Pressure is growing for a rethink on Business Rates and the new government has made some positive noises on this for small businesses. However, larger occupiers are unlikely to get much in the way of concessions.
HMRC to become a preferential creditor
This was put into the 2019 budget and it looks likely to go ahead from April 2020. The main concern for businesses is that it will impact lending to small businesses, as HMRC will in essence, come before the floating charge holder in the event of insolvency. Many businesses rely on this form of lending i.e. loans against their order book. Lenders are more likely to closely scrutinise the tax situation of their borrowers. The change will apply to PAYE, NIC and CIS deductions as we understand it. Will it be linked to more aggressive debt collection by HMRC when SMEs are behind with such payments?
The outlook for the economy and other businesses is difficult to predict. We have seen falling levels of insolvency since the peak of 2010, with a small increase last year mainly, in the retail and construction sector. I think it is likely that we will see further rises in insolvency rates in 2020 as higher costs and inflation put pressure on margins and companies find it hard to refinance.
Financing in 2020
We expect that alternative funders, P2P lenders and investors will see higher delinquency levels leading to default levels at 4-8% and this is likely to dent the alternative lending market. We see so many small companies with 4, 5 even 8 different, P2P lenders who seem to lend with scant regard to company credit ratings. As a result, watch out for increased claims on personal guarantees, as such companies collapse under the weight of unsustainable (and frankly ill-advised) borrowing levels. We expect to see rising liquidation levels in 2020.
KSA Group's office will close at 12:00 pm on Tuesday on 24th December 2019 and will re-open at 9:00 am on Thursday 2nd January 2020. Our helpline remains open throughout the period 0800 9700 539
Once again, have a very merry Christmas and a happy New Year!