Taking a look back at another momentous year

It didn’t quite work out that way did it?

In several ways it can be argued that 2021 was actually worse than 2020 personally and professionally for thousands of people. 

But what about UK businesses? How did they fare in the second year of the pandemic? 

The Insolvency Service recently 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 14,048 company insolvency cases recorded in the UK and Northern Ireland in 2021 which was an 11% year-on-year increase but still 22% lower than in 2019, the last non-Covid-19 affected year.

The overall total of 14,048 can be broken down as follows:

  • Compulsory Liquidations

There were only 475 compulsory liquidations last year which is not only a reduction of 284% on the 1,351 recorded in 2020 but is also the lowest recorded total in the last 15 years.

  • Creditors Voluntary Liquidations (CVL)

There were 12,662 CVLs last year which was a rise of 134% on 2020 but the second highest total recorded in the past six years and the third highest since 2006. 

  • Administrations

There were 795 administrations recorded in 2020 which was a reduction of 191% and the lowest total in 15 years since 2006. 

  • Company Voluntary Arrangements (CVA)

There were only 115 CVAs recorded last year which is not only a huge yearly reduction of 225% but also the lowest number recorded since 1993.

  • Receiverships

There was one receivership recorded last year which was down from three a year ago but in line with the totals from 2018 and 2019. 

In 2020, The Insolvency Service listed five factors which it thought had a material impact on the reduced number of company insolvencies. These were:

  • Restrictions to creditor actions such as winding up petitions and statutory demands which remain in place until March 2021
  • New tools such as insolvency moratoriums and court ordered restructuring plans
  • Reduced HMRC enforcement activity due to staff absence and case backlogs
  • Financial support for companies in difficulty including bounce back loans, VAT and business rates holidays and the Coronavirus Jobs Retention Scheme, better known as the furlough
  • Advice and guidance from financial service regulators urging forbearance for businesses in financial difficulty

In 2021 only the first two measures retained their influence although less than a year previously. 

Winding up petitions can be launched under certain conditions although these will disappear in two months and while there have been 15 moratoriums and 10 restructuring plans registered at Companies House since they were introduced, they haven’t been used in more significant numbers yet although this could well change in 2022

Chris Horner, Insolvency director with BusinessRescueExpert said: “The unprecedented rise in creditors voluntary liquidations (CVLs) last year comes at the expense of compulsory liquidations and company voluntary arrangements (CVAs). 

“At first glance, this tells us that more directors and business owners are biting the bullet and looking to close their businesses rather than restructuring their finances and debts or waiting for them to be liquidated by aggressive creditors. 

“While there is always space to examine how a business can be rescued, the effect of the past two years on trading shows that directors are more inclined to close otherwise viable companies than reach agreements with creditors. 

“It will be fascinating to see if this is a temporary phenomenon based on their experiences during the pandemic or whether it becomes accepted wisdom.”

Sector breakdown

When it came to the individual sectors of the economy, the top three categories remained the same but were in a different order. 

Construction remained the sector with the highest number of individual company insolvencies with 2,302 (up from 2,042 in 2020) with retail becoming the second largest category rising from third with 1,673 (up from 1,532 in 2020) while the hospitality sector incorporating accommodation and food services was down a place to third with 1,499 insolvencies (down from 1,701 in 2020). 

The construction industry traditionally tends to have the highest annual and quarterly insolvency levels but the well publicised woes of the retail industry battling reduced footfall and increased online competition have increased the number of insolvencies in their sector. 

Hospitality has dropped a place despite another troubled year with additional lockdowns and less support than the previous 12 months. 

Other notable sectors include Professional services (1,230), Manufacturing (916), Transport (485) and Real Estate (359).

Colin Haig, President of R3, the insolvency and restructuring industry trade body said: “The increase in annual corporate insolvencies has been driven by a rise in Creditors Voluntary Liquidations (CVLs), which reached levels not seen since 2009. 

“The increase last year – and the surge in CVLs in the final quarter of 2021 – suggests that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate. And while insolvencies still haven’t reached pre-pandemic levels, this is unlikely to remain the case for long.

“The increase also reflects the torrid 12 months businesses have faced as they attempt to carry on trading in the second year of a pandemic amidst uncertainty, change and challenge. Businesses have had to trade through lockdowns and restrictions, increases in energy prices and supply chain issues. 

“And they’ve done so in an economy which only returned to where it was before the pandemic in November – just weeks before the Government’s Omicron measures were introduced. 

“Given the current climate, we urge company directors to be aware of the signs of financial distress and seek help if any present themselves.”

We couldn’t agree more. 

Warning signs come in many forms 

Problems paying staff, stock levels increasing or piling up, rent and tax debts becoming increasingly more difficult to keep on top of and lower income or trade are all signs that the business could be entering a phase that could be difficult to emerge from without advice, help and support. 

Our free virtual consultation is always available for any business owner or director to take advantage of and arrange whenever they need to. 

The promise of a return to economic business as usual beckons but even if the early part of 2022 looks like it on the surface, rising energy bills, taxes, business rates and other expenses mean that customers and businesses might be squeezed tighter than ever before. 

So acting now, working with us to identify which areas of your business need attention urgently and putting in place an effective and efficient plan to do it could mean that 2022 really is the year when your luck changes.