Comment: furloughing has simply delayed the inevitable for zombie firms writes Ian Carrotte of ICSM Credit

As soon as the Chancellor Rishi Sunak announced the introduction of the furlough scheme at the start of the Covid-19 crisis my immediate reaction was it wouldn’t end well. How can companies survive with little or no income when all the overheads continue as before? Without reserves firms face at best a shrunk down operation and at worst insolvency.

And that’s precisely what we are seeing as retailers reopen – or not – and the hospitality and travel industries plead for a relaxation of the two metre social distancing rule. Around 600,000 workers have lost their jobs since March 23, with many more to follow as businesses great and small realise they have to restructure or collapse. In short furloughing has simply prolonged the inevitable.

Zombies kept alive by furloughing staff

Furloughing has kept zombie companies alive for a few weeks but since so many were barely able to repay their debts before the crisis there is and will be a high casualty rate. In retail there’s Autonomy, Cath Kidston and Victoria’s Secret to name but a few while the list of empty pubs and restaurants that won’t reopen increases daily. In contracting industries like high street retailing, the newspaper business and motor manufacturing the furlough scheme is if anything making a bad situation worse.

Meanwhile many profitable start-ups, freelancers and sole-traders have been unable to access the grants, the loans or even the furloughing scheme – and have been left to fend for themselves. Instead a list of the greedy companies with plenty of cash such as Virgin Atlantic, Arcadia, Primark and Optare have helped themselves to what their lawyers call ‘free money’ at the tax-payers’ expense. With an end to furloughing in sight the zombie companies, the how-have-they-survived-until-now companies, the heavily in debt firms and businesses with unhelpful bank managers will go bust. And those that are left will wonder why billions of pounds were ploughed into furloughing when perfectly sound businesses were given little or no help. It is all working out rather predictably with the end of furloughing resulting in collapsed firms, unpaid suppliers and millions out of work.

Ian Carrotte

News headlines

Fashion firm swoops to buy rival’s online business

The internet based fashion house BooHoo has bought the online brands of Oasis and Warehouse out of administration for £5.25m after announcing its own online sales rose 45% during the lock down. Manchester-based Boohoo also splashed the cash and bought brands MissPap, Karen Millen and Coast earlier this year. Very few of the Oasis and Warehouse’s 1,800 workers will be taken on as the chain has already closed ita 90 shops and 437 concessions in department stores.

Tipper firm tips up

Haulier P J Brown (Construction) has gone into administration blaming the end on the effects of the Covid-19 pandemic. Based in Crawley the tipper truck and haulier founded in 1980 had 79 vehicles and have appointed joint administrators Nicholas Cusack and David Perkins of Parker Andrews and Andrew Andronikou of Quantuma. However PJ Brown (Civil Engineering) continues to trade.

Long Tall Sally cut short

The fashion company for taller women Long Tall Sally has collapsed into administration. The first store was opened in 1976 on Chiltern Street in the West End of London. By 2014 there were 10 stores in UK, five in the US, seven in Canada, and five in Germany.  On their website they have put: “We’re as sad as you are about closing Long Tall Sally but we’re here to help, so if you’ve got questions, we’ve got answers. You’ll find most of them below, along with contact details for our Customer Care team. Thank you for all your support.” They have also given this email address for suppliers who have not been paid: finance@longtallsally.co.uk

Pre-pack for oak furniture firm

The once mighty Oak Furnitureland retailer has been bought via a Deloitte managed pre-pack deal by global investment management firm, Davidson Kempner Capital Management for an undisclosed sum. Reports say that Alex Fisher, the companies’ current CEO will stay in post and the 1,491 employees will also be retained in the 100 plus chain of stores. Based in Swindon the new owners say they will negotiate with landlords and suppliers over unpaid bills. 

Former owner linked to bust bakery cafe chain Le Pain Quotiden

French-themed coffee and bread chain Le Pain Quotidien has been bought out of administration by BrunchCo21, linked to its former owner, Cobepa. Some 200 staff were canned from its 26 outlets when it crashed this spring. The new owners hope to negotiate with the landlords of the remaining 16 properties in order to re-float the business although there is no word of what happens to unpaid suppliers.

Warning from ICSM Credit about firms in trouble

When fashion brand Autonomy went into administration in March it owed suppliers £940,000 and was ordering stock right up to when they went bust. No business is safe from insolvency. It’s a warning to all suppliers as many go on trading with firms who are showing all the signs of being in trouble but blindly supply them with goods and services which will never be paid for. There are a lot of companies in all industries that are struggling to survive but as long as they are paying suppliers, or have a repayment plan in place or another arrangement that guarantees payment then fine. But if a client airily dismisses concerns without addressing them then the rule is DO NOT SUPPLY THEM.

About ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel – while at the moment there’s a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach – ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk