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Restructuring review: Q4 2020

Shaun O’Callaghan Shaun O’Callaghan

Government support is keeping many businesses afloat through lockdown. We look at the long-term implications for banking and restructuring.

The government’s continuing commitment to supporting businesses through both liquidity and furlough measures, means that there will likely be a delay in the expected upsurge in corporate insolvencies and restructuring.

This delay is expected to last until at least Q3 or Q4 this year, when normality somewhat returns following the roll out of the COVID-19 vaccine.

As a result of government support, many companies are more cash rich than would be expected in the current climate. This, in turn, means that some businesses that are arguably unviable are maintaining liquidity. We expect, as the year unfolds, a natural progression from a liquidity crisis to an insolvency crisis as the underlying impact on businesses is fully realised.

Going forward, we expect many companies will be seeking further capital repayment holidays, covenant waivers and further borrowing as government support eases. Banking business support teams will become increasingly active in supporting companies and will be crucial in facilitating the transition back to more standard borrowing facilities.

Let's look at the sectors and areas that are likely to be impacted by these issues being kicked down the road:

Market insights

The number of distressed cases we are seeing, which is mirrored by lenders, is down 10% compared to 12 months ago. This is thought to be driven by the high levels of liquidity mentioned above.

In the weeks before the publication of this article, we have had an increasing number of clients come to us for support with additional funding requests to avoid restructuring. There is a universal expectation among the clearing banks that many businesses will be struggling as all major lenders have been gearing up their restructuring teams.

Unsurprisingly, the biggest upsurge in distress is likely to be seen in the retail, hospitality, leisure, and automotive sectors; all of which are tackling the effects of multiple lockdowns, furlough, social-distancing measures and travel restrictions.

Sector insights


The table below shows both the largest insolvencies by revenues in Q4 of 2020 (left) and in Q4 of 2019 (right).

As evidenced, 2020 saw the insolvency of some of the high street’s major retailers. The build-up of accrued, unpaid rent presents a significant challenge for the retail sector, which will come into focus when the moratorium on landlord enforcement action terminates on 31 March 2021. This, combined with the rise of online sales in 2020, presents a significant threat for retailers reliant on a physical presence on the high street.


Leisure and hospitality

Leisure and hospitality are still expected to be among the worst hit sectors, given the uncertainty surrounding lockdowns and social-distancing measures.

Breweries and catering businesses are some of the most at-risk, given the closure of pubs and restaurants, and the cancellation of large-scale events. Many have sought to diversify and or offer take-away opportunities, but even this has been restricted so as to exclude alcohol under the current lockdown regulations.

Furthermore, the use of deposits to fund working capital will be of particular concern in some businesses, such as concert and wedding venues, if they are unable to fulfil their obligation or return money to customers who are unable, or no longer wish, to proceed.


The hotel sector has seen a divergence in performance in 2020 with key rural and coastal locations like the Lake District and Bournemouth seeing a boost in occupancy rates in the summer as consumers opted for UK holidays. However, city centre locations, which heavily rely on international and business travel, have understandably been adversely affected.

Managing operating costs in a low revenue environment and availability of capital were two of the biggest challenges for hotels in 2020. In H1 2021, these challenges will remain for many operators, particularly those with hotels that were under-invested or were underperforming before the start of the COVID-19 pandemic.  

We expect the recovery in the sector to be driven by the vaccine roll out, which will improve consumer confidence and lead to an increase in domestic leisure staycation demand in Q2 and Q3. We anticipate international and business demand will remain subdued for most of 2021.

Despite being one of the worst hit sectors, the UK remains a popular market for hotel investors. We expect the level of M&A activity to increase once more distress emerges in the sector after the government eases its COVID-19 support measures.   

Care homes

Care homes are undoubtedly feeling the strain, and many are struggling to secure new residents.

Due to the sector taking advantage of government initiatives during the current economic situation, the delta between accounting profits in management accounts and the underlying sustainable earnings has never been greater. At a time when respite care, which tends to be a temporary placement, occupancy numbers are up and permanent occupancy is down 5-10%, the focus needs to be increasing permanent occupancy. This is proving difficult as homes with a high proportion of private residents are struggling due to an increasing reluctance to place relatives in homes. Restrictions are still in place across the country to protect vulnerable residents, and with people unable to visit family in homes, many are looking at other care options.

FY20 Q4 graphical analysis

Insolvencies by region

The below graphs show the spread of UK insolvencies by region. As evidenced, Greater London has seen the largest number of insolvencies (2,449) with Wales (124) and Northern Ireland (149) at the lower end of the scale. The graphs show that insolvencies are not centralised in one area, but rather are spread across the UK, as would be expected, given the widespread impact of the coronavirus situation.



Insolvencies by sector

The graphs below show the highest rate of insolvency was in the professional, scientific, and technical sector (1,419) with the arts, entertainment and recreation (152) sector at the lower end of the scale. As mentioned above, it is expected that those industries most affected by coronavirus will be those dependent on social and leisure activities. This looks set to continue into 2021, with lockdown measures still in place.