Business insolvencies increase for the first time since February

The number of company insolvencies in England and Wales rose to 1,228 in December, data from the Insolvency Service has revealed. The figures are up by 9.2% on December 2019 and mark the first increase since February, with Government support rolled out amid the coronavirus crisis helping prevent a number of company failures – with temporary restrictions on winding-up petitions also playing a part.

Overall, numbers of registered company insolvencies have remained low since the start of the first UK lockdown in March 2020, when compared with the same time period last year.

Business insolvencies increased by 37.8% to 1,228 in December 2020 when compared to November’s figure of 891, and were 9.2% higher than December 2019’s figure of 1,125. The business insolvency figures comprised of 998 creditors’ voluntary liquidations (CVLs), 35 compulsory liquidations, 150 administrations and 45 company voluntary arrangements (CVAs). There were no receivership appointments.

When compared with the number of company insolvencies registered in December 2019: Compulsory liquidations were 80% lower, CVLs were 26% higher and there were twice as many CVAs, though numbers were small whilst Administrations were 7% higher.

Commenting on the figures Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “December’s increase in corporate insolvency numbers has been driven by a rise in administrations and Creditors’ Voluntary Liquidations. It is the first time since February 2020 that the monthly corporate insolvency figures are higher than in the same month the previous year.

“These figures show that the economic impact of the pandemic may now finally be pushing increasing numbers of struggling businesses and individuals over the line into formal insolvency.”

“It’s a question of when, not if, insolvency numbers further increase this year – especially as the Government’s support packages, which have provided a critical safety net for businesses and individuals, are due to start running out at the end of the first quarter. Even if the Chancellor decides to extend them again, at some point they will have to come to an end.”

“COVID-19 has had a devastating impact on the UK’s economy, which fell by 8.9% in the twelve months to November 2020, and on unemployment levels, which have increased at the sharpest rate for a decade. We’ve also seen a number of big brands – including household names – enter insolvency processes or announce restructuring programmes as their operations were hampered.”

“While it’s too early to judge the impact of the latest lockdown on businesses, it has further complicated an already muddy economic picture, and will likely have been an additional blow for firms which traditionally depend on a busy festive period.”

“Even if the economic impact of the introduction of stricter lockdown measures isn’t as dramatic as it was during the early stages of the pandemic, it will be serious, and businesses will also start to feel the effects of the change in the UK’s relationship with the EU – though it’s unlikely that this will affect insolvency numbers in the short term.”