Credit, Collections & Insolvency News
Latest figures from the Insolvency Service have indicated an 8.8% increase in business insolvencies in England and Wales when compared to April’s figure of 929, and increased by 6.9% compared to May 2020’s figure of 946.
The figures show that business insolvencies increased to 1,011 in May 2021 compared to April’s figure of 929, and increased by 6.9% compared to May 2020’s figure of 946.
Of the 1,011 registered company insolvencies in May 2021, 31 compulsory liquidations, which is 6% lower than May 2020 and 89% lower than May 2019. There were 930 were CVLs, which is 18% higher than May 2020 but 3% lower than May 2019, six were CVAs, which is 50% lower than May 2020 and 81% lower than May 2019;
There were 43 Administrations, which is 61% lower than May 2020 and 55% lower than May 2019; and there was one receivership appointment.
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.
Commenting on the figures Duncan Swift, Immediate Past President of insolvency and restructuring trade body R3 and Restructuring and Insolvency Partner at Azets said “Today’s increase in corporate insolvencies has been driven by a rise in Creditors’ Voluntary Liquidations, while administrations have fallen to the lowest number since the start of the pandemic. While it’s too early to say whether the mild increase in corporate insolvency numbers is the start of something bigger, times remain tough for businesses in the UK.”
“Government support has held off rather than halted the economic damage of the pandemic, preventing a serious rise in insolvency levels, but many business owners are now having to look ahead to how they’ll cope when these measures are withdrawn in the weeks and months ahead.”
“Looking to the future, businesses are more confident about their ability to grow, but many are, quite rightly, still concerned about the continued effect of Covid restrictions. Business owners in some sectors will be feeling increasing concern at the prospect of another delay to the easing of lockdown in England, as announced by the Prime Minister yesterday. And although the economy continues to grow, there’s still a lot of ground to make up to fully recover from the unprecedented economic contraction in April 2021. Consumer spending has increased, but it’s still below 2019 levels, and while consumer confidence is improving, people are still worried about the future of the economy.”
Whilst Jonathan Amor, Restructuring and Insolvency Partner at Azets said “The figures released for May 2021 show a slight increase in corporate insolvencies compared to the previous month but continue to show a trend of low corporate insolvencies compared to pre-pandemic levels. This is likely attributable to the continuing Government support that was put in place during the pandemic to support businesses, as well as the temporary restrictions on the use of certain creditor enforcement actions.”
“One of these temporary restrictions, namely the use of a winding-up procedure, is due to end on 30th June 2021 which, if not pushed back again, is likely to see a sharp rise in corporate insolvencies in the coming months as creditors will be able to enforce their rights again. The end of the furlough scheme is also due at the end of September 2021, which will put further cash flow pressure on some companies and will likely increase insolvencies in the last quarter of 2021 and the start of 2022.”
“Businesses should not wait for creditor action to land on the doorstep and now is the time for management to consider if future cash flow will be an issue. They need to consider whether their business model is sustainable, and that any extra debt taken on during the pandemic can be serviced. With this in mind, business owners should seek appropriate expert advice at the earliest opportunity from a regulated restructuring professional. Most restructuring firms offer a free initial consultation and this should be taken advantage of to ensure the best chance of survival.”
Oliver Collinge from PKF GM said “We expect this trend of low corporate insolvency numbers to continue into the summer while government support schemes remain available as well as the temporary restrictions on the use of certain creditor enforcement actions. However, the tide is likely to turn soon and it is inevitable that they will return to at least pre-pandemic levels in the future.”
“One of these temporary restrictions, namely the moratorium on issuing winding up petitions, is due to end on 30 June 2021 which, if not pushed back again, could trigger a sharp rise in corporate insolvencies in the coming months as creditors will be able to enforce their rights again. The end of the furlough scheme is also due at the end of September 2021, which will put further cash flow pressure on some companies and will likely increase insolvencies in the last quarter of 2021 and the start of 2022.”
“Those businesses that were expecting lockdown measures to be lifted on 21 June will be at particular risk. Another month of closures without any additional government support could be the tipping point.”
“As lockdown measures start to ease next month and a number of businesses that have been closed for most of the last year start to reopen, we expect more businesses in the region will need to consider what future funding they will require if sales do not quickly return to pre-pandemic levels.”
“With an increased working capital requirement on re-opening, there will be multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid.”
“It’s critical businesses act early and seek advice if they are struggling now, or think cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover.”