Credit, collections & insolvency news
Latest statistics from the Insolvency Service have indicated that there were 12,557 underlying corporate insolvencies in England and Wales in 2020, a fall of 27.1% from 2019’s figure of 17,224.
The total number of registered underlying company insolvencies in 2020 decreased to the lowest annual level since 1989. This was largely driven by a low number of underlying CVLs, which reached the lowest annual level since 2007. Compulsory liquidations and CVAs also dropped to the lowest annual levels since 1973 and 1993 respectively.
In 2020 CVLs made up 75% of all underlying company insolvencies, compared to 70% in 2019. There was a corresponding decrease in the proportion of company insolvencies made up by compulsory liquidations, from 17% in 2019 to 11% in 2020. Administrations accounted for 12% of all underlying company insolvencies, slightly up from 11%.
Commenting on the figures Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “The annual reduction in corporate insolvency levels – to the lowest total figure for more than a decade – has been driven by a decrease in all types of company insolvency. The most significant factors behind it are the support measures the Government has introduced for businesses since the onset of the pandemic and the suspension of creditors’ ability to take action against many corporate debtors.”
“Corporate insolvency levels increased by nearly 17% between Q3 and Q4 2020, and were driven by an increase in Creditors’ Voluntary Liquidations. This may suggest that the effects of the pandemic are now pushing some firms into insolvency, but it’s worth noting this quarter’s figures are still significantly lower than they were this time last year.’
“The Government’s COVID support measures and legislation are key drivers of these low insolvency numbers, but they have deferred rather than deterred the full effects of the pandemic being reflected in corporate insolvency levels. It’s a question of when, not if, levels of corporate insolvency increase this year, but the timing will depend on when – and how – the Government support ends.”
“2020 was a devastating year for British businesses. The pandemic and the series of lockdowns which were introduced in an attempt to slow down infection rates took a toll on the economy and made it harder for firms to operate.”
“The retail, hospitality and tourism sectors have been particularly badly hit, and we have seen a number of household names enter an insolvency process or announce restructurings in an attempt to mitigate the effects of the pandemic.’
“The next 12 months are likely to be challenging for businesses. Alongside the pandemic and the economic impact it has had, the change in our relationship with the EU is likely to affect a number of firms as new arrangements are put into effect – and there have already been a number of well-publicised teething problems.”
“At the moment, with Government support still in place and creditors generally sympathetic to the challenges of the business climate, many companies may find they have a precious – albeit temporary – breathing space. Now is the time for their directors to think about how they move forward and take advice from a qualified source as soon as they see signs their firm is starting to struggle, or if they’re worried about the next year.”
“As the saying goes, it’s always worth hoping for the best but planning for the worst, and doing so now will mean you have more options later on.”
Samantha Keen, Turnaround and Restructuring Partner at EY said “While the final quarter of 2020 saw an increase in the number of corporate insolvencies in comparison to the previous quarter the annual total was a record low. Despite the economic impact of the pandemic, significant changes to the insolvency framework to help businesses through the year meant 2020 saw the lowest total number of new insolvencies in at least twenty years. At the end of last year, many UK businesses hunkered down for winter with increased efforts and government support to remain solvent. There was renewed focus on strategic decisions to reduce cost bases and find efficiencies, such as streamlining operations and rationalising group structures.”
“Looking ahead, a raft of non-fiscal government support measures is due to come to an end on 31st March and this is likely to intensify the risk of insolvency for many businesses carrying unsustainable debt. For bricks and mortar businesses, there are just two months left for commercial tenants and landlords to come to an agreement on unpaid rent. At the same time, the 31st of March will see the end of VAT deferrals and protection from creditor enforcements through the current temporary restrictions on the use of statutory demands and winding up petitions. On top of this, the reintroduction of HMRC’s preferential status in insolvencies at the end of last year may cause some funding issues for those businesses dependent on floating charge lending.”
“There is only so long the solvent options for struggling businesses burdened with unsustainable debt remain viable, and the sooner they seek advice the more options they will have. For the businesses that are able to balance their books, balance sheet management and preservation of capital will be their top priority, followed by the ability to be nimble and adapt to evolving markets, post-pandemic.”