Business insolvencies rise by over 44% March

Latest figures from the Insolvency Service have indicated a 44% rise in business insolvency rates across England & Wales.

Business insolvencies in England increased by 44.8% to 992 in March 2021 compared to February’s figure of 685 and were 19.7% lower than March 2020’s figure of 1,236.

The number of business insolvencies in March 2021 was 992 the figures were 20% lower than the number registered in the same month in the previous year (1,236 in March 2020), and 37% lower than the number registered two years previously (1,586 in March 2019).

Overall, the numbers of registered company insolvencies have remained low since the start of the first UK lockdown in March 2020, when compared with pre-pandemic levels.

Business insolvencies numbers comprised of 883 CVLs, 25 compulsory liquidations, 74 administrations and 10 CVAs. There were no receivership appointments.

In March 2021, when compared with the number of company insolvencies registered in March 2020 and March 2019 compulsory liquidations were 86% lower than 2020 and 90% lower than 2019;

CVLs were 3% lower than 2020 and 23% lower than 2019 with CVAs were 44% lower than 2020 and 66% lower than 2019 and administrations 44% lower than 2020 and 58% lower than 2019.

Responding to the figures,  Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3,  said “The monthly rise in corporate insolvency numbers shown in the figures published today has been driven by an increase in Creditor Voluntary Liquidations and administrations, while Company Voluntary Arrangements also increased.”

“The economic damage caused by the pandemic is starting to be reflected in levels of insolvency, but Government support has postponed rather than prevented the true picture being shown in insolvency levels to date.”

“Twelve months ago, the economy was struck by the pandemic – and it has yet to fully recover. The monthly rise in corporate insolvencies comes after 11 months of relatively low levels of company insolvency procedures, as the Government’s support has provided many businesses with a vital lifeline and removed many of the traditional prompts and triggers for seeking financial advice.”

“As lockdown restrictions continue to unwind, there are reasons to be optimistic. Many businesses have adapted and reinvented themselves during the pandemic and maybe in a better position for the coming months as a result.”

“We may also see consumer spending increase, but companies need to be aware of the risks of over-trading if they don’t have the cash flow needed to cover the full costs of reopening and restocking. They need to plan for a sustainable reopening of their businesses.”

“Unemployment is unsurprisingly higher than it was a year ago, and while many people have been able to save money during the pandemic, there are also a large number whose personal finances are precarious.”

“The demand for workers in sectors gearing up for a return to pre-pandemic levels of work will offset some of the jobs lost in the companies worst-hit by Covid, but it will take some time for unemployed people’s economic and mental wellbeing to recover.”

“The Government’s recent decision to extend a number of its temporary insolvency measures provides a window for anyone whose finances have been affected by the pandemic to plan for the future and explore how they can improve their situation. We urge them to take it – and to start by seeking advice about their options from a qualified source.”

Whilst Duncan Swift, Restructuring and Insolvency Partner at Azets said “We now have a full-year picture of the effects of the pandemic; and accompanying government support measures, on corporate insolvency volumes.”

“Throughout the year, the number of corporate insolvencies has typically been 30%-40% below the prior year (2019). This trend continues to be reflected in the number (992) for last month (March 2021) that is 20% below March 2020; the start of the first lockdown, that was itself 22% down in volume on the prior year (March 2019).”

“Clearly government support measures such as loans and suspension of creditor rights to enforce payment by debtor companies have helped many companies ride out the economic storm caused by the pandemic, including thousands of companies that were already financially weak before the pandemic started.”

“This cannot go on forever. In past economic recessionary shocks, the greatest number of corporate failures happen immediately after; rather than before or during, as companies grapple with the twin challenges of rebuilding their business, whilst having to start to repay historic debt, which results in ‘over-trading’ relative to their available financial capital.”

“This is the lull before the storm which is reflected in the low numbers of moratoriums (4) and restructuring plans (5) since these new tools were introduced by the Corporate Insolvency & Governance Act 2020 came into force (26 June 2020).  Business owners need to act now to avoid tipping over the edge this year.”