Business insolvencies decrease in May

The Insolvency Service has published its latest insolvency statistics which have shown a decrease in May, compared to a year ago, in England & Wales.

There were 994 company insolvencies in May 2020, comprising of 790 creditors’ voluntary liquidations (CVLs) 32 compulsory liquidations, 110 administrations and 12 company voluntary arrangements (CVAs). There were no receiverships.

Overall, this was a decrease of 30% when compared to the same month last year. This was driven by a decrease in the number of compulsory liquidations in May 2020, which fell by 88%, when compared to May 2019.

Compulsory liquidations require a winding-up order obtained from the court by a creditor, shareholder or director. Since the UK lockdown was applied on the evening of 23rd March to slow the spread of the coronavirus, the HM Courts & Tribunals Service has reduced the operational running of the courts and tribunals .

The Government also announced in late April that it would prohibit the use of statutory demands and certain winding-up petitions from 27th April to 30th June 2020 . There was also a 17% decrease in the numbers of CVLs in May 2020 compared to May 2019, and a 61% decrease in CVAs. Administrations rose by 16% compared to May 2019, but this was driven by lower numbers of Administrations in May 2019, rather than much higher numbers in the most recent month.

The figures also show in the first three weeks of March, prior to the UK lockdown on the 23rd March, an average of 66 company insolvencies were registered daily. In the remaining six working days following lockdown in March, the average daily number of company insolvencies registered had more than halved to 29.

This reduction is linked to a short-term capacity constraints at Companies House as it put in place safe processes to manage its work on-site; and delays in documents being provided to Companies House by insolvency practitioners.

Throughout April and May the average daily numbers of registered company insolvencies had increased but remained lower than pre-lockdown levels. This was particularly the case for compulsory liquidations which fell 80% from an average of ten new cases per day in prelockdown March, to an average of two cases per day in May.

Commenting on the figures Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, said “Today’s figures show corporate insolvency numbers declined between April and May of this year”

“The corporate insolvency figures show the Government COVID-19 support measures appear to be helping many businesses that may otherwise have struggled during this period of economic disruption. This, in part, explains the drop in the number of businesses entering an insolvency process. There are also operational and logistical factors – such as the partial closing of the courts at the end of March – which also continue to play a role.”

“While these statistics provide another snapshot of how the pandemic is affecting businesses and consumers, they still do not provide a full account of the impact it is having on levels of insolvencies.”

“Indicators over recent months suggest that an increase in insolvency numbers is coming, but this has not yet materialised. We are potentially in the period of calm before the storm, as indicated by the unprecedented 20.4% fall in GDP in April, published today.”

“For the first couple of months of lockdown, the insolvencies which took place were mainly those of companies which were already in financial trouble. It may not be long before this changes, however, and insolvencies of companies which would be viable under normal circumstances are initiated due to the lockdown and the effects of the pandemic.”

“It’s clear that we’re set for a period of economic turbulence. In addition to today’s shocking GDP figures, research also shows consumer spending and consumer confidence – which are indications of both the health of the nation’s personal finances and of how businesses will fare going forward – fell significantly between March and April, and many businesses will face a rocky road until this improves. The rent quarter day, which occurs in the fourth week of June, will also put extra pressure on many businesses.

“It’s also worth noting that job vacancies were also significantly lower in April than in March, according to the Government’s own figures, and businesses are not optimistic about their abilities to resume hiring again in the short term. This is bad news for anyone whose finances have taken a hit, and indicates that the return to pre-pandemic economic conditions may take a long time.”

“The longer lockdown continues, the more damage the economy will sustain. Yet easing restrictions on trading prematurely could lead to a wave of new infections and an even greater danger to business and personal finances. The Government has a difficult job in balancing these considerations as it plots a path forward.”

“Given the continuing uncertainty around how the country returns to ‘business as usual’, anyone worried about their personal or business finances should seek advice as soon as possible from a professional and reputable source. The earlier they do, the wider range of potential solutions they’ll have open to them, and the more considered a decision they’ll be able to make about their next move.”