Devastating as the collapse of the Arcadia Group will be for its employees, we should not forget the potential impact on those businesses that have traded with it.
Commercial landlords, suppliers, hauliers, shopfitters and even the local sandwich shops that look after the workers are likely to suffer. Their viability going forward may be severely compromised by a feature of business failures in this country which is to push the pain down the supply chain until it finds the breaking point, or points, at which we see more failures. In turn, the creditors of those businesses can end up suffering. The risk to a number of businesses within a sector is that they could ultimately die the death of a thousand cuts.
We are fortunate in this country that we do have tried and tested insolvency processes. These have proved to be as attractive to foreign individuals and companies as to the domestic market. The question has to be, however, whether they remain fit for purpose in the face of the fallout from the pandemic.
The Government has been very quick to act in legislating, bringing in the Corporate Insolvency and Governance Act 2020 and revising it as the pandemic has stretched out. My concern is that this is really no more than a sticking plaster, a quick fix to allow most businesses to continue to trade in the hope that the hoped for economic bounce will put everything right.
One may go further and argue that the legislative changes have actually encouraged some companies to abuse the financial support that has been provided by the Treasury. We used to refer to the “zombie” companies, those businesses whose existence was only made possible by historically low interest rates and the disinclination on the part of funders to force their borrowers into an insolvency process. For some of those companies, the directors of which know that there is no future, what is the risk of accepting monies from the Treasury knowing that they will probably go into liquidation in the New Year leaving no cash behind for a liquidator to bring a claim to recover monies diverted away from the company. That is another topic for another day.
The innovation generated out of the pandemic has been inspiring and points to a resilient future for many businesses. At the same time, we have seen a speeding up of changes taking place on the High Street, which changes do not just affect retailers and their creditors. Is it right therefore, to seek to rely on insolvency processes which seek to protect just one business and then wait for those caught in the fallout to look after themselves or are we better looking to refine the processes to protect that all of those are directly involved? I suggest that now is the time to review the Insolvency Act and the whole thinking behind it. Now is the time to innovate to protect businesses in the UK.
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