Business insolvency numbers continue to decline

The Insolvency Service has published its latest business insolvency statistics for England & Wales which have revealed that the overall numbers of business insolvencies numbers continue to fall.

Corporate insolvencies fell to 778 in August 2020 compared to the previous month’s figure of 961 and are significantly lower than they were in August 2019 (1,369).

The insolvency numbers comprised of 586 creditors’ voluntary liquidations (CVLs), 66 compulsory liquidations, 110 administrations, 15 company voluntary arrangements (CVAs) and one receivership appointment.

The overall number of company insolvencies decreased by 43% in August 2020, when compared to the same month last year. This was primarily driven by a decrease in the numbers of CVLs and compulsory liquidations which fell by 39% and 67% respectively.

The number of CVAs in August 2020 was 50% lower than in the same month last year, though the numbers were small. Administration fell by 38% in comparison to August 2019. In July 2020 both administration and compulsory liquidation reached a post-lockdown peak, but numbers seen in August were more in line with previous months since lockdown was implemented on the evening of 23rd March.

The overall reduction in company insolvencies was likely to be, in part, driven by the range of government measures put in place to financially support companies in response to the coronavirus pandemic. The government also announced in late April that it would temporarily prohibit the use of statutory demands and certain winding-up petitions from 27th April to 30th June 2020. This was further extended to 30th September under the Corporate Insolvency and Governance Act.

Responding to the figures, R3 President Colin Haig said “The decrease in corporate insolvencies over August was driven by a drop in administrations and compulsory liquidations, while the fall in personal insolvencies is driven by a reduction across each of the three main personal insolvency processes (bankruptcies, Debt Relief Orders and Individual Voluntary Arrangements).

“Despite today’s news, there is no question that the pandemic is taking its toll on businesses and individuals, but this impact is not being reflected in the insolvency figures, yet. With a number of temporary Government measures aimed at reducing insolvency numbers set to come to an end on 30 September, this situation may start to change before long.”

“The Government’s support measures have provided vital protection for businesses and consumers, but as they begin to wind down and this crucial safety net disappears, we expect to see more requests for personal and corporate insolvency advice and support.”

“This is a worrying time for the UK, its economy and its business community. Unemployment is increasing, business debt is rising, and, despite growth in July, the economy is still nearly 12% below pre-pandemic levels.”

“More big brands have announced cuts in staffing levels over the last month as they attempt to steer their way through the new landscape created by the pandemic. This, coupled with contraction in the services sector, and manufacturing and construction still well behind their pre-pandemic state, means it is a tough time for British businesses.”

“Many SMEs with staff on furlough may realise, when the scheme ends, that they are unable to sustain previous staffing levels, and will have to consider redundancies – which may be expensive, as well as deeply upsetting for all those affected.”

“People are worried about the economy – and about their own financial situations. Consumer confidence remains low, as does people’s optimism about their financial future, even though borrowing and spending have increased recently.”

“Our members are saying that requests for advice and support are becoming less restructuring-focused than they were at the start of the pandemic, and that enquiries for formal insolvency support are growing in volume, although they are still lower than might have been expected. Insolvency and restructuring professionals expect enquiry levels to grow as the furlough scheme ends, and when CBILS loans become due for repayment early next year.”

“Anyone concerned about their financial situation – whether on their own or their business’s behalf – should seek advice from a qualified professional as soon as the signs they might be in trouble show themselves. Doing so will give them the best chance of turning their situation around – and more options and more time to take a decision on how they move forward.”

“To support businesses and individuals affected by the economic consequences of the pandemic and highlight the importance of seeking early advice, R3 has formed a new committee of senior insolvency and restructuring professionals, the Back to Business UK Committee.”

“This committee will work with R3’s team to help produce guides on the profession, its processes, and the benefits of seeking early advice and help educate a range of audiences about insolvency and restructuring, how it can help businesses and individuals turn their financial situation around, and the contribution it makes to the UK economy.”

“It’s likely that more people are going to need insolvency and restructuring advice and support. We hope this committee’s work will encourage business owners and individuals to seek advice as early as they can rather than waiting until later and limiting their options for improving their situation.”

Separately, Adrian Hyde, Partner at restructuring and insolvency firm CVR Global says that Company Voluntary Arrangements are going to be vital in providing a launchpad for the UK economy’s recovery over the coming months and need strong backing across UK plc, according to a leading insolvency practitioner.

The process has been attempted by struggling retailers in recent years – such as Debenhams, Monsoon and New Look – to either terminate their renting lease or renegotiate new leases – opening the process up to criticism from some landlords who often feel short-changed.

Hyde, says that the financial damage caused by the Covid-19 pandemic is set to spark a wave of new administrations or liquidations unless businesses go down the CVA route, and is urging those against the process to think carefully about the long-term consequences of voting against them.

 “We need to see a mentality shift on the topic of CVAs from being a process that is being abused by financially-stricken companies to get out of trouble, to one that is going to be crucial in helping this country’s economy to stabilise and thrive in the long-term.”

 “While it is true that a CVA can potentially disadvantage some creditors, the process is there to preserve as many feasible businesses as possible.

“The vast majority of businesses will turn to using a CVA as a tool to negotiate new terms with creditors just to survive in the long-term – and this approach is only going to gather pace post-Covid as the Government’s financial support winds down.”

 “It’s important that UK plc embraces the CVA process because in the long run it is going to help more businesses who stand a strong chance of recovering to stay afloat, resulting in creditors eventually receiving all or part of the money that they are owed.”

 “Businesses across the country have received remarkable financial support from the Government in recent months, but that can only go on for so long, and for many businesses who feel they can trade their way out of this crisis but just need time, then a CVA could be their best solution.”