Business insolvencies double

Latest figures from the Insolvency Service have indicated that the number of business insolvencies in England and Wales doubled year-on-year last month, with 1,560 company insolvencies in January.

The business insolvency numbers were up from 758 in January 2021 and exceeded the pre-pandemic total of 1,508 recorded in January 2020.

Business insolvencies increased by 4.8% in January 2022 compared to December’s total of 1,488, and increased by 105.8% compared to January 2021’s figure of 758 and were 3.4% higher than in January 2020 (1,508).

The number of company insolvencies was 3% higher than in the pre-pandemic comparison month (January 2020) and more than double the number in January 2021 (106% higher).

The increase in company insolvencies was driven by an increase in the number of CVLs, which were 34% higher than pre-pandemic levels. Other insolvency types were lower than pre-pandemic levels, although compulsory liquidation numbers were more than double the number in January 2021.

Of the 1,560 registered company insolvencies in January, there were 1,358 CVLs, which is 122% (2.2 times) higher than in January 2021 and 34% higher than in January 2020. 118 were compulsory liquidations, which is 131% (2.3 times) higher than January 2021, but 60% lower than January 2020.

There were 13  CVAs, which is 38% lower than January 2021 and 59% lower than January 2020. There were 71 administrations, which is 3% lower than January 2021 and 58% lower than January 2020 and no receivership appointments.

Commenting on the figures, Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, said “The increase in corporate insolvencies is being driven by a rise in compulsory liquidations, which were 131.4% higher than this time last year. This suggests that creditors are now starting to take action over unpaid debt, having been legally prevented from doing so since the start of the pandemic.”

“Numbers of Creditors’ Voluntary Liquidations have remained similar compared to this time last month, which suggests that many company directors are continuing to choose to close their businesses rather than attempting to carry on trading in the current climate.”

“The figures published today highlight the toll the current business climate is taking on firms in England and Wales. Over the last two months, businesses have had to trade through a perfect storm of issues which will have affected them and their income. They’ve battled a myriad of factors including new Covid measures, a slowdown in consumer spending, and rising inflation, with steep increases in energy prices a particular pinch-point. All of these will have taken a toll.”

“After nearly two years of trading through a pandemic, these factors may increasingly become too difficult for many directors to deal with. Against a backdrop of continued pandemic-related uncertainty, there is likely to be a significant number of directors who will be increasingly doubtful that their business can survive much longer.”

“Colin Haig, Head of Restructuring & Insolvency at Azets said “The number of liquidations continues to rise this year and we’ve now seen the use of a CIGA 2020 Restructuring Plan and 15 moratoriums. 15 moratoriums are very good news and this procedure is potentially a game-changer for the UK because it gives management air cover while they finesse a solution better than a train crash.”

“However, the prevalence of liquidations rather than administrations is a worry. Liquidation usually means that there is no way forward for the business and employees and compulsory liquidation is a symptom of businesses chasing debt playing catch up with their credit control, knowing full well that everyone is likely to lose in a liquidation with no one getting paid. A going concern solution delivered via an administration is relatively better than liquidation as it will generally keep more people in jobs and potentially result in more debt being paid to creditors. We hope to see more moratoriums and less liquidations this month.”

Mark Supperstone, Managing Partner at ReSolve, said “After two years of false calm, it’s back to reality for businesses as Government support measures, which were available throughout the pandemic, have been removed. There is now the real issue that the debt taken on through the pandemic needs to be paid back and some businesses are realising that they are unable to trade their way out of trouble.”

“But it’s far from doom and gloom for distressed businesses. There are several private equity and other institutional investors out there who are keen to invest in good businesses fallen on hard times. We are advising our clients to act early in seeking advice, there are often plenty of options if business owners seek support at an early stage.”