The Insolvency Service has released its latest Quarterly business insolvency for England & Wales, figures which have indicated that there were 2,384 seasonally adjusted corporate insolvencies in Q1 2021, a reduction of 21.9% compared to Q4 2020’s figures of 3,053 and a fall of 38.3% compared to Q1 2020 (3,863).
Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “The quarterly fall in corporate insolvencies – to the lowest quarterly total on record – has been driven by a drop in all corporate insolvency processes. However, the increase in corporate insolvencies between February and March of this year, which was reported earlier this month, suggests corporate insolvencies may now be on the rise.”
“It’s clear Government’s support measures are still helping to keep businesses going, but they have pushed back rather than prevented the financial pain of the pandemic from translating into a sharp, sustained increase in corporate insolvencies.”
“The total number of corporate insolvencies between April 2020 and March 2021 fell by more than a third compared with the same period a year earlier, while GDP fell nearly eight per cent during the same period. A drop in corporate insolvencies of this scale during an economic climate like this suggests that corporate insolvencies are likely to rise – and rise sharply – in future.”
“The first three months of 2021 have been tough for businesses, and followed a year of pandemic-induced problems – shutdowns, re-openings, and the challenges of working in a way that’s compliant with social distancing guidelines.”
“Looking more widely, the economy has not recovered from the onset last April of the unprecedented economic contraction, while consumer confidence has also remained low. And although consumer spending increased towards the middle of March this year, it still remained well below 2019 and 2020 levels for the majority of the first three months of this year.”
“As the Covid restrictions lift and we begin to return to normality, businesses face three key challenges. First, they need to keep a careful eye on their cashflow levels to ensure they don’t fall into the trap of over-trading.”
“They also need to make sure they have a plan for reopening in a way that’s sustainable, so they don’t undo their efforts to survive the last year by mismanaging the next couple of months. And they need to think about how they will manage when the Government support measures end. Many company directors have delayed planning for this, but they need to use the remaining time they have to put a plan in place for the final quarter of this year and beyond, before the majority of the measures end in June, and furlough is wound up in September.”
Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon,said “The figures show that after seasonal adjustment, there were 2,384 company insolvencies registered in Q1 2021; 22% lower than the number of company insolvencies registered in the previous quarter and 38% lower than during the same quarter in the previous year.”
“The decrease in company insolvency figures in the first quarter of 2021 is unlikely to cause a sigh of relief. This is a moment to take a breath before a predicted significant increase in the number of UK businesses entering some form of insolvency process as government support measures wind down.”
“While 22% lower than Q4 2020, the Q1 2021 company insolvency figures showed a significant increase between February and March. This uptick could be the first indication of an upwards trajectory for the year, as expected by four out of five UK executives (79%) who stated they expected higher levels of insolvency in 2021*.
“The current low levels of insolvency are extraordinary given how few businesses have been unable to trade normally – if at all – since March 2020. Analysis shows that if insolvency levels had continued in line with the pre-March 2020 pace, more than 6,000 more companies would be insolvent today than the data shows.”
“There is still some uncertainty in the timings given previous extensions, but if the government’s roadmap isn’t delayed, furlough is due to taper from the end of July. The current schedule also shows extended measures in the Corporate Insolvency and Governance Act, including the suspension of liability for wrongful trading and a moratorium on winding up petitions, currently coming to an end on 30 June. The economy should be fully open by 21 June, but we know that many businesses will struggle to restart and adapt to the new landscape. If this bears true, the rate of insolvencies is expected to significantly increase.”