Business insolvencies increase by 29%

The Insolvency Service has published its latest figures which indicates that in July business insolvency numbers in England and Wales increased by 29% when compared to June 2020 but are 34% lower than in July 2019.

The figures show that there were 955 company insolvencies in July 2020. comprising of 590 creditors’ voluntary liquidations (CVLs), 166 compulsory liquidations, 182 administrations and 17 company voluntary arrangements (CVAs).

There were no receivership appointments. The overall number of company insolvencies decreased by 34% in July 2020, when compared to the same month last year. This was primarily driven by a decrease in the numbers of CVLs and compulsory liquidations which fell by 41% and 36% respectively.

The number of CVAs in July 2020 was also 56% lower than in the same month last year though the numbers were small. The overall reduction in company insolvencies was likely to be in part driven by the range of government support put in place to financially support to companies in response to the coronavirus (COVID 19) pandemic.

The government also announced in late April that it would temporarily prohibit the use of statutory demands and certain winding-up petitions from 27th April to 30th June 202 . This was further extended to 30th September under the Corporate Insolvency and Governance Act.

Whilst the overall number of company insolvencies remained low when compared with the same month last year, the number of companies entering administration in July 2020 increased by 25% in comparison to July 2019.

It is important to note that there were two groups of companies that entered administration in July 2020 that included multiple related companies that were all recorded as separate companies entering administration. Underlying data suggests that these two failures accounted for approximately one in six of all companies entering administration in July 2020.

Compulsory liquidations remained low when compared with July 2019, but increased to the highest monthly level since the implementation of lockdown on the evening of 23rd March 2020. Compulsory liquidations require a winding-up order obtained from the court by a creditor, shareholder or director.

Since the UK lockdown was applied, the HM Courts & Tribunals Service has reduced the operational running of the courts and tribunals .

Approximately 70% of the 166 compulsory liquidations in July 2020 had a petition date prior to the UK lockdown, suggesting that the increase in the number of compulsory liquidations in July was largely due to the HM Courts & Tribunals Service resuming processing of a backlog of petitions following reduced operations in response to the coronavirus pandemic

Commenting on the business insolvency numbers Colin Haig, President of R3, said “The month-on-month rise in corporate insolvencies in July is largely down to an increase in administrations, Compulsory Liquidations, and Creditors’ Voluntary Liquidations (CVLs). Although overall numbers remain low in comparison to the same time last year, this uptick could suggest that the pandemic might now be starting to be seen in the insolvency figures.”

“It’s important to note that although today’s statistics suggest the pandemic is starting to affect corporate insolvency levels, the Government’s continued support for businesses and consumers means we’re not much nearer to understanding how COVID-19 is truly affecting underlying corporate or individual distress than we were last month.

“However, all the signs point to a tough road ahead. The UK has entered a recession, consumer confidence is low, and a number of big-name brands have recently announced they are exploring or have entered insolvency or restructuring procedures.

“This suggests the business climate will be challenging in the foreseeable future – and will not be made any easier as the Government support packages begin to wind down.

“Our members are telling us that it may not be long before companies which would be viable under normal circumstances begin to seek support from an insolvency and restructuring professional, as a result of the impact of the pandemic.

“This may lead to an increase in requests for personal insolvency support if people lose their jobs or agree to take on liability for a business’s debts as part of an unsuccessful attempt to turn it around.”

“Our advice to anyone who is worried about their personal or their business’s financial health is to seek advice from a qualified professional as soon as they start to see signs they might be in trouble. Doing so will give them the best chance of turning their situation around – and more options and more time to take a decision on how they move forward.”