Firms face the biggest crash for a decade

COMPANIES are going to go bust at rates not seen since the credit crunch and the global recession a decade ago due to the coronavirus, according to accountancy giant EY.

The warning comes as research from EY shows stock market-listed companies issued a record 301 profit warnings during the first quarter.

That compares to 313 for the whole of last year and 287 for the entirety of 2018.

More than three quarters of the warnings issued in the first quarter blamed Covid-19 for a deterioration in trading.

The pandemic and lockdown have paralysed economic activity around the world and insolvency and corporate restructuring specialists say growing numbers of anxious firms are contacting them about their options.

Even though the Government is due to outline how it will restart the economy this week, EY said that the UK faces the biggest drop in GDP since the

First World War. The economy is expected to shrink by 6.8 per cent this year, if the lockdown is lifted by the end of the month with no further shocks.

EY anticipates a “significant increase” in bankruptcies when the lockdown lifts and companies try to rebuild their businesses. As with 2008 and 2009, where more businesses went under in 2009 after the credit crunch had hit, it expects there to be an even greater number of insolvencies in 2021 than there will be this year.

Alan Hudson, EY UK head of restructuring, said: “We know from previous crises one of the biggest tests comes when companies need to reflate balance sheets, restock and depend on supply chains that have been similarly tested. Companies face a unique set of challenges to safeguard business continuity and the health of employees and customers.”