April showers fewer corporate insolvencies on us than the previous month
So it’s natural to expect some spluttering and stalling before an engine recovers its temperature and rhythm to start firing on all cylinders again.
The parallels and similarities with the UK’s economic engine and machinery struck us when we saw the official registered company insolvency statistics for April 2021 released by The Insolvency Service.
The total number of company insolvencies for England and Wales last month was 925.
This is a slight reduction on the 992 recorded in March and is 23% lower that the 1,199 recorded in April last year and 35% down on the 1,429 reached in April 2019.
Despite lots of headlines about a “return to normal” we are still experiencing extraordinary times from a statistical viewpoint.
The numbers of registered company insolvencies have reached historic lows since the start of the year of lockdowns, and still remain significantly subdued.
The 925 company insolvencies in England and Wales consisted of 819 creditor voluntary liquidations (CVLs), 26 compulsory liquidations, 75 administrations and 5 company voluntary arrangements (CVAs).
In comparison to the data for the same month from the previous two years, we see how depressed the numbers are right now.
- Compulsory liquidations are 74% lower than in 2020 and 89% lower than 2019.
- CVLs are down 12% on 2020 and down 20% on 2019.
- CVAs are 76% lower than in 2020 and 81% lower than 2019
- Administrations were 48% lower than both 2020 and 2019 respectively.
Additionally, there were 38 company insolvencies in Scotland (made up of 9 compulsory liquidations, 28 CVLs and one administration) which was down 17% year on year and 63% lower than April 2019.
There were also 5 company insolvencies registered in Northern Ireland (made up of 3 compulsory liquidations and two CVLs). This is down two from last month and while 67% higher than a year ago, is 74% lower than April 2019 – but while dealing with such relatively low totals, any change could produce high percentages.
The overall UK total of company insolvencies for April 2021 is 968. An overall reduction of 74 on last month’s figure.
As statutory demands and winding-up petitions are still suspended until the end of June 2021 and with other measures such as the CJRS furlough remaining until September, the figures are being artificially depressed from levels we would expect to see given similar trading and external economic conditions.
“Government has a challenge on its hands”
Christina Fitzgerald, Vice President of R3, the insolvency and restructuring trade body said: “The monthly fall in corporate insolvency numbers shown in the latest published figures has been driven by a drop in both Compulsory Liquidations and Creditors Voluntary Liquidations.
“We now have a year’s worth of pandemic insolvency figures, and it’s clear the Government’s support measures have prevented a significant number of businesses from becoming casualties of the economic consequences of Covid-19.
“The big question is what will happen to insolvency numbers as we come out of the pandemic, but there are too many variables to say with much certainty about exactly what this will look like.
“Government has had a challenge on its hands in terms of managing the exit from lockdown and the withdrawal of its financial support measures. How it handles this will help determine if there is a sharp spike of business failures or simply a smoother return to pre-pandemic insolvency levels.
“Company directors need to make the most of the time they have left before these support measures finish to plan for the future, and work out how they will manage without state support.
“The situation is still tough for many British businesses. While spending is increasing, it’s still below 2019 levels and consumer confidence remains low, although people are more optimistic about their finances over the next 12 months.
“The easing of the lockdown in the middle of April, and the further lessening of restrictions recently will be a boost to many businesses. That said, a large number are still having to work in a way that complies with Covid guidelines, adding cost and complication to their operations.
“The temporary ban on winding-up petitions is due to finish at the end of June, and other Government support schemes are due to be withdrawn in the next few months, which will clearly increase pressure on financially struggling firms.”
You might be forgiven for experiencing a sensation of deja vu when you look at the latest official company insolvency statistics.
They appear to constantly be at historic lows thanks to a mix of economic support, legal restrictions and increasing customer demand.
Sadly none of these factors are guaranteed to last for many more months this year. Two are almost certain to be withdrawn and demand can fluctuate due to various factors even at the best of times, never mind during reopening from a worldwide pandemic lockdown.
The one piece of advice we have consistently offered to directors and business owners during this fairly static period becomes more pertinent and imperative with every passing week – get some professional advice!
This time can be valuable to plan the next steps in your business’s recovery strategy or to consider moving in different directions.
We continue to offer a free initial consultation where we can learn about what challenges your company is facing and offer you actionable choices that you can make, often immediately, to bring you closer to your end goal.
Because when the economic winds do change, you’ll be surprised how strong they’ll become and how quickly a April shower can turn into an actual storm.