2020 – a story of a year in corporate insolvency
The Insolvency Service have published their final corporate insolvency statistics for the year so we can see real data on how the Covid-19 pandemic and subsequent support measures have affected businesses in the UK.
There were 12,557 underlying company insolvencies recorded in 2020 which was a 27% year-on-year reduction but was also the lowest recorded level since 1989.
This was driven by the lowest number of Company Voluntary Liquidations (CVLs) – 9,418 – which was their lowest annual level since 2007.
Company Voluntary Arrangements (CVAs) – 259 – were down to their lowest levels since 1993 and with only 1,351 Compulsory liquidations recorded, this is the lowest number since 1973 – 48 years ago!
The overall number of company insolvencies in 2020 of 12,557 was primarily (over 75%) made up of creditors voluntary liquidations (CVLs) although these were 22% down on their total from 2019.
Compulsory liquidations were down by 55% year-on-year; Company voluntary arrangements (CVAs) were down 26% and administrations were down 16%.
The Insolvency Service have listed five potential causes for the reductions in company insolvencies – all related to the Covid-19 response efforts. These are:-
- Reduced HMRC enforcement activity since the first lockdown was applied from March 23rd 2020.
- Temporary restrictions brought in under the Corporate Insolvency and Governance Act 2020 which halted the use of statutory demands and winding-up petitions which lead to company compulsory liquidations.
- New insolvency tools such as moratoriums and court ordered restructuring plans
- Enhanced government financial support for companies primarily through the Coronavirus Jobs Retention Scheme (CJRS); Bounce Back Loans and other measures including VAT and business rates holidays.
- Strong advice from financial service regulators that businesses in financial difficulty should be treated with forbearance and due consideration.
The Insolvency Service also notes that it specifically doesn’t record whether an insolvency is directly related to the pandemic so cannot positively state its direct effect on insolvency volumes but the effect on the figures is clearly not coincidental.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates compared to 12 months ago.
The areas that saw the most insolvencies in the 12-month period were construction (2,042); accommodation and food services (1,701) and wholesale & retail trade including repair of vehicles (1,673).
The construction industry traditionally tends to have the highest quarterly insolvency levels but the well publicised woes of the hospitality, hotel and food service industries have propelled them into second place as what would traditionally have been their busiest period was effectively halted.
Colin Haig, President of R3, the trade body for the insolvency and restructuring industry said: “The annual reduction in corporate insolvency levels – to the lowest total figure for more than a decade – has been driven by a decrease in all types of company insolvency.
“The most significant factors behind it are the support measures the Government has introduced for businesses since the onset of the pandemic and the suspension of creditors’ ability to take action against many corporate debtors.
“The government’s Covid-19 support measures and legislation are key drivers on these low insolvency numbers, but they have deferred rather than deterred the full effects of the pandemic being reflected in corporate insolvency levels.
“It’s a question of when, not if, levels of corporate insolvency increase this year, but the timing will depend on when – and how – the government support ends.
“The retail, hospitality and tourism sectors have been particularly badly hit, and we have seen a number of household names enter an insolvency process or announce restructurings in an attempt to mitigate the effects of the pandemic.
“At the moment, with government support still in place and creditors generally sympathetic to the challenges of the business climate, many companies may find they have a precious – albeit temporary – breathing space.
“Now is the time for their directors to think about how they move forward and take advice from a qualified source as soon as they see signs their firm is starting to struggle, or if they’re worried about this year.
“As the saying goes, it’s always worth hoping for the best but planning for the worst, and doing so now will mean you have more options later on.”
We couldn’t agree more.
We can arrange a virtual consultation – totally for free – whenever it’s convenient for you.
While the promise of a return to economic business as usual beckons, it will be many months and weeks before this arrives – if it does – so there’s no better time to act than now.
We’ll help you identify which areas of your business need immediate attention, which can be improved in time and come up with an effective and efficient plan to do both.
Then maybe 2021 will be a real improvement on 2020 for even more reasons.