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Hospitality sector faces insolvency crisis

There has been a 65% rise in write-offs of loans to restaurants and hotels during the pandemic, with £99m written off by banks and other lenders in 2020/21, up from £60m the previous year, shows research by Mazars

The loan write-off figure has increased from £60m over the previous year, Mazars added.

As government support nears the end date for major schemes like furlough, write-offs in lending to the leisure sector are starting to rise again as Covid pressure begins to affect industries hit hard by the financial strain of successive lockdowns.

Banks that had been attempting to collect unpaid loan repayments from struggling businesses in the sector are now increasingly writing them off as bad debts.

Rebecca Dacre, partner at Mazars, said: ‘As support from the government starts to wind down, we’re now beginning to see the true impact of the pandemic on the leisure and hospitality industry.’

The costs associated with ramping up for reopening, such as restocking, equipment maintenance, deep cleaning and new recruitment have been an added burden for struggling hospitality companies, already paying rent for restaurant, bar and hotel sites despite the repeated shutdowns of venues, and this has simply been too much for many businesses, Mazars said.

The furlough scheme, which paid 80% of employee wages and was a lifeline for many businesses, winds down entirely at the end of September. On top of this, difficulties recruiting staff to work in the leisure sector and requirements for social distancing has impacted businesses’ ability to operate at pre-pandemic levels.

For troubled hospitality businesses, the end of the moratorium on winding up petitions on 30 September 2021 and the end of the suspension on landlord action for rent arrears in March 2022 will cause even further difficulties, and likely trigger a sharply increased number of insolvencies in the sector.

Dacre added: ‘It is clear that we have yet to see the full extent of the pandemic’s financial impact on hotels and restaurants. However, the data is now starting to show more signs of stress in the sector.

‘Businesses that are just keeping their head above water are likely to be taken under by the end of government support schemes, the repeated cost of reopening and restocking, difficulty recruiting staff and lower occupancy or covers due to people’s changing habits or working patterns. Those businesses that have benefitted from UK tourism this summer may still find themselves looking for support after the holiday season ends.’

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