Business insolvencies increase 16.7%

Latest figures from the Insolvency Service has shown that ehe number of businesses in England and Wales that there were 3,765 seasonally adjusted business insolvencies in Quarter3 2021, an increase of 16.7% compared to Q2 2021’s figures of 3,226 and a rise of 43.5% compared to Q3 2020 (2,624).

The Insolvency Services says that teh increase was driven by an increase in CVLs to the highest quarterly level since Q2 2009, while numbers for all other company insolvency procedures were similar to the previous quarter and lower than in the same quarter of the previous year.

One in 341 active companies (at a rate of 29.3 per 10,000 active companies) entered liquidation between 1 October 2020 and 30 September 2021. This was a decrease from the 32.4 per 10,000 active companies that entered liquidation in the 12 months ending 30 September 2020.

During Q3 2021, there were 3,765 (seasonally adjusted) registered company insolvencies, comprising 3,471 creditors’ voluntary liquidations (CVLs), 105 compulsory liquidations, 169 administrations, and 20 company voluntary arrangements (CVAs). There were no receivership appointments.

Commenting on the figures, Nicky Fisher, Deputy Vice President at insolvency and restructuring trade body R3 said “The economic damage caused by the pandemic is now starting to be reflected in levels of corporate insolvency – but the picture is mixed when looking at the different types of procedure.”

“Corporate insolvencies have risen this quarter to the highest quarterly figure since the pandemic began, and this has been driven by a rise in Creditors’ Voluntary Liquidations – to the highest quarterly total in 12 years. That said, administrations have remained static compared to Q2, while there has been a small drop in the number of CVAs; both of which are much lower compared to the year before.”

“The rise in CVLs would suggest that company directors are choosing to close their businesses after trading for more than a year and half during a pandemic and deeming future success unlikely.”

“This is understandable given the current economic climate. Over the last three months, businesses have faced a perfect storm of rising energy prices, labour market and supply chain issues, coupled with the winding down and withdrawal of the Government’s support measures.”

“In addition to this, consumer spending and confidence declined over the late summer and early autumn as people worried about their finances and the future of the economy, and cut back on their spending as a result.

“As we enter the winter months, directors need to be alert to signs their business might be distressed, which include cashflow issues, problems paying staff or suppliers and increasing stock levels – and seek advice as soon as any of them present themselves, or if they become worried about their business and its finances. Most insolvency professionals’ initial consultations to identify recovery options are given free of charge.”

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon,said “After exceptionally low levels of business failures over the last 18 months, the Q3 data indicates that UK insolvency is returning to pre-pandemic levels, even before the removal of government support. The significant year-on-year increases in August and September are particularly concerning given that they came ahead of the end of the moratorium on winding-up petitions at the end of September.”

“The rise in insolvency coincides with an increase in the number of profit warnings recorded by EY, with above average profit warning levels in September driven by supply chain and cost issues. Our data highlights the increasing difficulties companies face just as most government support is ending and as we’re seeing the escalating knock-on effects of supply chain, energy price and labour market issues.

“Government support has insulated many companies from the true impact of the significant level of change linked to the pandemic, the UK’s departure from the EU, and other market forces – such as digitisation and the transition to Net Zero.”

“As we enter the all-important ‘golden quarter’, it’s critical that companies in retail and hospitality sectors have a strong Christmas, particularly given that the commercial rent moratorium ends in March 2022.

“Looking ahead, we expect to see a continuing rise in insolvencies in the coming months, driven by companies that would have failed without pandemic life-support and those who cannot survive without it. We also expect a simultaneous level of stress to build as companies struggle to adapt to rapid changes in their markets.”

Total company insolvencies	Compulsory liquidations	CVLs	Administrations	CVAs	Receiverships
2020Q3	2,624	302	1,870	388	63	1
2020Q4	3,091	148	2,517	345	81	0
2021Q1	2,374	115	2,033	189	37	0
2021Q2	3,226	102	2,929	169	25	1
2021Q3	3,765	105	3,471	169	20	0