An Insolvency Mystery – Restructuring numbers relapsed in January – but why?
Insolvency statistics are a curious thing.
The Insolvency Service does a fantastic job in providing regular, reliable and comprehensive statistics.
They give us the clearest indication of precisely what is happening in every UK country regarding company insolvencies. The downside is that they are necessarily time-lagged so by the time the official figures for a certain month are released, we’re three weeks into the new month and already looking ahead.
So it is with the first official statistics for January. These are important because they give us the first official snapshot of 2021 and what this could tell us about the underlying strength of the UK economy and the health of the thousands of businesses that make it up.
The last monthly statistics release we covered for December showed a rise in the total number of company insolvencies which indicated that after a year of historic lows, perhaps cases were getting back to the numbers one would expect given the series of challenges businesses are having to overcome to stay afloat.
Well, the opposite has happened – they fell by over half.
The overall number of company insolvencies in January 2021 for England and Wales was 752, down from 1,228 in December 2020 and down by just over 50% for January 2020 which saw 1,515 cases registered.
We now know that December 2020 was the only month since the start of the first UK lockdown in March where company insolvencies were higher than in the same month of the previous year.
But compared to January 2020, the figures from last month are striking:-
- Compulsory liquidations – 85% lower
- Creditor Voluntary Liquidations (CVLs) – 39% lower
- Company Voluntary Arrangements (CVAs) – 34% lower
- Administrations – 57% lower
Additionally there were 23 company insolvencies in Scotland (12 compulsory liquidations, 11 CVLs) and 3 in Northern Ireland (2 compulsory liquidations, 1 CVL) making a total of 778.
The Insolvency Service reiterates that as a result of pandemic itself and various Government support schemes including the Corporate Insolvency and Governance Act 2020 including the ongoing suspension of statutory demands and winding-up petitions, would have a strong influence on the numbers.
However none of these entirely solve the mystery of why corporate insolvencies rose in December yet fell away again dramatically in January.
Colin Haig, President of R3, the insolvency and restructuring trade body might have an explanation.
He said: “Many firms are still struggling – and those who usually rely on a strong pre-Christmas trading period will have suffered as the third lockdown meant people couldn’t shop as they have traditionally. i
“It’s possible that a number of businesses entered an insolvency procedure ahead of the December rent quarter day, which would help explain why corporate insolvencies – and more specifically administrations and CVLs – increased then and fell again in January.
“January’s fall in corporate insolvency numbers is primarily driven by falls in CVLs, CVAs and administrations.
“These figures don’t reflect the fact that the economic fallout from the pandemic is continuing to hit businesses, individuals and the wider economy. It’s clear the Government’s support packages – which were extended again in December – are helping prevent the rise in insolvency numbers we would have expected to see in an economic climate like this one.
“However, the support packages and bans on creditor enforcement actions can’t last forever.
“We hope that the Chancellor will use his budget on March 3rd to outline how they will be wound down in an orderly manner in the medium term, and how businesses, staff and the self-employed will be supported during this period.
“Our members are telling us that companies are hesitant to make plans with conditions liable to change at any moment, so clarity around the future of the support schemes will help directors with their planning for the rest of the year.
“The debt burden which UK companies, especially SMEs, have built up is also a concern, as it will drag down the investment which will be a vital component of the economic recovery from the recession.”
Colin Haig’s description makes sense when you consider that entering an insolvency moratorium itself or other insolvency procedure that grants a similar protection such as a CVA.
It gives a company at least ten working days’ protection from creditors’ demands and actions while they work with a professional insolvency practitioner to see how they can make the business stronger and more resilient.
If you feel that your business could benefit from some professional, impartial advice then get in touch with us to arrange a free, virtual consultation.
We can help you make sure that your company is in the best position to take advantage because these legal and commercial conditions won’t last forever.
That’s one thing we can all be certain off.