Business insolvency figures disguised by pandemic disruption

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

The short term effects of the lockdown show that during the first three weeks of March, prior to the UK lockdown on the 23rd March, an average of 66 company insolvencies were registered daily. In the remaining six working days the following lockdown, the average daily number of company insolvencies registered had halved to 30. The reduction in insolvencies was linked to short-term capacity constraints at Companies House, as it put in place safe processes to manage its work on-site as well as delays in documents being provided to Companies House by insolvency practitioners.

However, in April the average daily number of registered company insolvencies returned to pre-lockdown levels.

In April 2020 there were a total of 1,196 company insolvencies in England and Wales, consisting of 933 creditors’ voluntary liquidations (CVLs) 97 compulsory liquidations, 144 administrations, 21 company voluntary arrangements (CVAs) and one receivership.

Overall, this was a decrease of 17% when compared to the same month last year. This was driven by a decrease in the number of compulsory liquidations in April 2020, which fell by 60%, when compared to April 2019.

Compulsory liquidations require a winding-up order obtained from the court by a creditor, shareholder or director. Since the UK lockdown was applied on the evening of 23rd March to slow the spread of the coronavirus, the HM Courts & Tribunals Service has reduced the operational running of the courts and tribunals1.

The Government also announced in late April that it would prohibit the use of statutory demands and certain winding-up petitions from 27th April to 30th June 2020 . There was also a 9% decrease in the numbers of CVLs in April 2020, when compared with April 2019, and a 3% decrease across all other types of company insolvency.

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.”