Personal insolvencies increased by 8% in April

The Insolvency Service has published its latest insolvency statistics which have released that the overall numbers of individual insolvencies dropped in the days immediately after the UK lockdown was applied.

The figures show that were 10,397 individual insolvencies in April 2020 in England and Wales, consisting of 8,093 individual voluntary arrangements (IVAs), 1,496 debt relief orders (DROs) and 808 bankruptcies (the latter were made up of 784 debtor bankruptcies and 24 creditor bankruptcies).

Overall this was an increase of 8% when compared to the same month last year, However, there was considerable variation across the different individual insolvency types. There was a 39% increase in IVAs in April 2020, compared with the same month last year. Most IVAs are supervised by licensed insolvency practitioners working for firms that specialise in this area; in some cases, this leads to a more volatile time series. Changes in monthly volumes may be due in part to how promptly and frequently IVAs are registered by providers with the Insolvency Service. Caution should therefore be taken when comparing IVAs registrations over a shorter time period. 7 There was a 37% reduction in DROs registered, compared with April 2019 and Bankruptcies fell 46% in comparison to the same month as last year. The reduction in bankruptcies was driven by a 34% fall in debtor bankruptcies and a 92% reduction in creditor bankruptcies.

The fall in figures was likely a result of a combination of factors including HM Courts & Tribunals Service reducing the operational running of the courts and tribunals, HMRC reducing their enforcement activity whilst The Insolvency Service, insolvency practitioners and Companies House had to adjust to new working arrangements

There was also delays in documents being provided to Companies House by insolvency practitioners. However, numbers of companies and individuals entering insolvency in April 2020 broadly returned to pre-lockdown March levels for most insolvency types.  The exceptions to this were compulsory liquidations and bankruptcies,  saw a 50% reduction in new cases compared with pre-lockdown March figures.

The numbers of debt relief orders also remained lower, having reduced by over one-third, compared with pre-lockdown March figures. The figures, as yet do not reveal whether an insolvency is directly related to the coronavirus pandemic, so therefore it is not yet possible to state its direct effect on insolvency volumes.

Whilst the volume of new company and individual insolvencies increased for most insolvency types in April 2020 when compared with pre-lockdown March figures, numbers of insolvencies in April 2020 were lower than in April 2019.

The one exception to this were individual voluntary arrangements (IVAs) which had increased by over one-third in April 2020, compared with April 2019. Following the UK lockdown, the Insolvency Service and the insolvency profession had to implement new working arrangements. It is likely that IVAs that would otherwise have been registered in March were instead deferred to April.

Commenting on the impact of the pandemic lockdown Christina Fitzgerald, Vice President at insolvency and restructuring trade body R3, said “The first set of monthly insolvency figures do not yet provide a particularly clear picture of how the pandemic is affecting insolvencies. Nevertheless, we welcome the Government’s decision to publish figures for insolvencies monthly rather than quarterly for the period of the pandemic, as these numbers will give more immediate feedback on how businesses, consumers and the wider economy are being affected.”

“The figures published today show corporate insolvency numbers fell very slightly between March and April, while there was a significant month-on-month increase in individual insolvencies, largely driven by a doubling of numbers of Individual Voluntary Arrangements (IVAs).”

“As the Insolvency Service notes, there are several complicating factors at play: some corporate insolvency procedures take time to get underway, while the changes to the normal operating of the courts have meant many civil proceedings have been halted. The Government’s support measures and policies for businesses and individuals have undoubtedly helped many stay afloat. Additionally, companies which planned for disruption in the case of a no-deal Brexit may find their preparations coming in handy to tackle disruption from a different source.”

“Our members are telling us the enquiries they are receiving are mainly for advice and support, rather than necessarily for COVID-induced insolvency processes. Directors want to understand how to manage their cashflow and what options are open to them operationally, consumers want advice, and both groups want to understand the finer points of the Government’s support measures and what they mean for their circumstances. The corporate insolvency procedures which have been initiated since the pandemic hit, meanwhile, are mostly those of companies which were already in financial distress pre-lockdown, for whom the freezing of normal operations delivered a final blow.”