All rise – company insolvencies return to their highest levels since first lockdowns
So while business continues whether you’re on holiday or not, it’s a good time to look back on what’s happened to businesses in the second quarter of the year – that covers data from April 1 to June 30 2021.
The Insolvency Service have published their second quarterly bulletin of the year revealing the total number of company insolvencies reported during this period and they show another uptick in insolvency activity.
When you look at the story of 2021 so far it resembles a giant V – recovering the numbers lost in the previous quarter.
The overall number of company insolvencies for England and Wales from April to June 2021 was 3,116 – 31% higher than the previous three months data and 4% higher than the same period in 2020.
This is also the highest quarterly total since the beginning of the pandemic.
The main driver is the increase in creditor voluntary liquidations (CVLs).
Q2 2021 (dark) v Q1 2021 (light)
The 3,116 recorded company insolvencies was made up of:
- 2,819 creditors voluntary liquidations – 787 more than in Q1 which is an increase of 39% and 472 more than Q2 2020, an increase of 20%.
- 102 compulsory liquidations – 12 fewer than in Q1, a reduction of 11% and 101 fewer than a year ago which is a 50% decrease
- 169 administrations – 19 fewer than in the first three months of 2021 which is a reduction of 10% and 230 fewer than Q2 2020 which is a decrease of 58%
- 25 company voluntary arrangements – 12 fewer than Q1’s total, a reduction of 32% and 22 fewer which is down 47% on the same period in 2020
- 1 receivership appointment
CVLs made up 90% of insolvency cases in England and Wales between April and June this year with administrations taking 5% of cases; compulsory liquidations reached 3% and only 1% of cases were CVAs.
There were a total of 165 company insolvencies in Scotland in Q2 2020, Up 91 or 32% higher than a year ago. This was made up of:
- 126 creditor voluntary liquidations
- 31 compulsory liquidations
- 7 administrations
- 1 CVA
In Northern Ireland there were 23 company insolvencies, Up 15 or 35% higher than Q2 2020. This was comprised of:
- 17 creditor voluntary liquidations
- 5 compulsory liquidations
- 1 administration
The total company insolvencies for the UK for Q2 were 3,304 – an increase of 814 from the first three months of the year.
The Insolvency Service reiterates that the historic low levels of company insolvencies compared to pre-pandemic numbers are due to several factors – some temporary while others might be more influential in the medium to longer terms.
Along with the unprecedented and historic level of government back financial support measures such as the bounce back loan scheme, suspensions of creditor recovery actions such as winding up petitions and a backlog of cases working through a court system that is still working someway below capacity have all had an influence.
Additionally, the introduction of the Corporate Insolvency and Governance Act 2020 brought in new legal powers including a statutory insolvency moratorium period and court sanctioned restructuring plans.
Since the introduction of the act on 26 June 2020, there have been five companies obtaining a moratorium and a further nine that had their restructuring plans approved and implemented by the courts. These measures are noted by the Insolvency Service but are not included within the statistics as they are not classed as formal insolvency processes.
The liquidation rates figures (a number per 10,000 active companies) tends to give us a clearer picture of the broader trends at work as they indicate the probability of a company entering liquidation rather than the number that actually have.
They are immune to one-off fluctuations or other factors and are more comparable over longer time periods than absolute figures. They indicate underlying trends affecting businesses so we can have a broader view of the direction of insolvency momentum.
The figure is calculated based on the data from a 4-quarter rolling rate per 10,000 active companies so the rates for Q2 2021 used data covering the periods from Q3 2020 to and including Q2 2021.
The liquidation rate for this period is 25.9 per 10,000 companies or 1 in 386 companies being liquidated in the 12 months ending on June 30 2021.
This figure is slightly higher than the previous quarter (25.3 per 10,000 or 1 in 396 businesses) but lower than the corresponding figure from Q2 2020 (36.9 per 10,000 or 1 in 271).
Insolvencies by industrial sector
Compared to the same time period a year ago, every industrial sector has seen a decline in insolvency rates
The three industries that saw the highest number of insolvencies were:
- Construction – 1,801 insolvencies (16% of cases)
- Accomodation and food services – 1,474 insolvencies (13% of cases)
- Wholesale and retail trade (inc repair of vehicles) – 1,366 insolvencies (12% of cases)
The construction industry continues to have a larger number of insolvencies than any other sector but the total number in the past 12 months is 36% lower than the previous period.
Colin Haig, President of R3, the insolvency and restructuring trade body said: “The increase in corporate insolvencies – to the highest total in 18 months – has been driven by a rise in creditors voluntary liquidations (CVLs) which have increased to pre-pandemic levels.
“It’s hard to say what’s driving this increase in CVLs but it could be that directors of a number of companies have decided they can no longer go on trading as a result of the pandemic, and are opting to close down their businesses by using the CVL process, before the situation deteriorates further.
“What is clear is that the figures show the toll the challenges of the last three months – and the twelve before them – have taken on the business community.
“While many business owners were hoping the lifting of the lockdown would help them, they reopened amid low consumer confidence, a time when people were being encouraged to stay local, and when the economy was still a long way from recovering from the start of the pandemic.
“The formal end of lockdown may have improved their situation but it wasn’t the boost many businesses had hoped for.
“However, the government’s support measures have remained in place over this period and are likely the reason why today’s increase isn’t as severe as it could have been.
“This support has been a lifeline for many businesses, but with the end of furlough in sight, directors now need to take the time to plan for how they’ll manage when this initiative ends.”
The key takeaway from these latest statistics is that despite government support still being largely in place through the coronavirus job retention scheme and statutory demands, winding up petitions and other enforcement measures remaining suspended, company insolvencies have increased relatively sharply.
Bounce back loan repayments are coming due, business rates liability is due to resume and as the remaining support measures are finally wound up and creditors are within sight of being able to take unrestricted action once more, it’s reasonable to assume that by the end of the year if not Q3, these figures will be higher still.
So what can an informed and responsible business owner or company director do – right now – to help their company through the turbulent next few weeks and months?
How about talking?
A problem shared might not be halved but getting in touch with us to arrange a free initial consultation chat will feel like a weight is lifted.
Once we get a better understanding of your unique circumstances, we’ll be able to advise you on what strategic and tactical steps you can take in the short and medium terms to bolster your business.
As the figures are beginning to show, not every company will be able to navigate the storm ahead but there are other options available that we can discuss that could lead to an alternative and ultimately better outcome than trying to rescue an unviable enterprise.
By the time Q3 ends on September 30, many business owners will wish they had extra time available to tackle their most pressing issues.
Make sure you use yours now.