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January corporate insolvencies are up and have doubled year on year

January corporate insolvencies are up and have doubled year on year

  Spending, meat, weight, alcohol - whatever the chosen variable, it was a time to reduce and recover from December’s excesses before enjoying them again in moderation with a return to normal activity.  And so far, with the reduction in Covid-19 cases and pandemic rules and regulations being rolled back, maybe this is the month […]

 

Spending, meat, weight, alcohol - whatever the chosen variable, it was a time to reduce and recover from December’s excesses before enjoying them again in moderation with a return to normal activity. 

And so far, with the reduction in Covid-19 cases and pandemic rules and regulations being rolled back, maybe this is the month when people can finally sense that they are getting back to normal. 

This mood is reflected in the first set of monthly company insolvency statistics published this week by the Insolvency Service which saw a huge year on year rise as well as a more modest month to month rise. 

The total number for January inclusively 1,560 which is more than double the 758 registered in January 2021 (106% higher) and 3% higher than the pre-pandemic total of 1,508 recorded in January 2020.

This is also the ninth consecutive month when the number of corporate insolvencies was both over 1,000 and higher than the corresponding number for the same month in the previous year.

Of the 1,560 English and Welsh insolvencies, the overwhelming majority are Creditor Voluntary Liquidations (CVLs) with 1,358 being recorded last month which is 87% of the total number of insolvencies. 

This is an increase of 106% from a year ago and 3% higher than in the same month at the beginning of 2020.

In addition to this amount of CVLs there were a total of 118 compulsory liquidations (up from 48 in December); 71 administrations (down one from 72 last month) and 13 company voluntary arrangements (CVAs) (up from seven last month).

A closer break down of these figures shows: 

  • The total of 1,358 CVLs was 122% higher than a year ago and 34% higher than pre-pandemic January 2020. While slightly lower than a month ago, this figure is still the fourth highest monthly total recorded since January 2020. 
  • There were 118 compulsory liquidations which is 131% higher than a year ago although still remains 60% lower than the total a year ago. One reason why these numbers are lower than they might normally be expected to be is because of the temporary halt to winding up petitions and other creditor actions. These restrictions are due to be lifted at the end of March so this category is very likely to rise during the second quarter and the rest of 2022.
  • 13 CVAs were recorded which is 38% lower than in January 2021 and 59% lower than they were a year previously. 
  • There were 71 administrations which is 3% lower than they were in January 2021 and 58% lower than January 2020. 
  • There were no receivership appointments logged in January.

The Insolvency Service further clarified their analysis with a short to medium term assessment of factors affecting the economy. 

They said: “We are starting to see several macro-economic factors causing distress in businesses in the UK - primarily driven by global inflationary trends (which is resulting in increasing cost of living, bringing wage pressure) and also continued supply chain disruptions and raw material and commodity shortages.

“Sectors that are most vulnerable to all of these at the same time - such as construction, manufacturing and technology will be the most impacted. It may not be easy for SMEs to be able to pass cost increases onto the consumer, leading to short-term liquidity pressures and longer term distress.

“Businesses that thrived under the pandemic are now at risk - for example online low-cost retail businesses are now being put under considerable pressure as they struggle to pass price increases onto customers for fear of high volume demand falling away. 

“We see clients in cyclical sectors such as agriculture suffering from liquidity pressures due to wage inflation, skills shortages, increases in cost of raw materials (due to supply disruptions and lower exports from producers) and, to some extent, the cost of transitioning to sustainable farming - which is impacting near-term cash availability. 

“While this may not lead to insolvencies, businesses should evaluate various forms of accessible finance to manage these short-term risks. While optimising working capital cycles is a great way to release cash, other solutions could include borrowing against assets, raising project finance or seeking long-term debt (in scenarios where balance sheets have healthy asset positions).

Interest rate increases have not yet influenced insolvency levels, but considering the level of debt currently held, we expect this to cause additional pressures in the future, particularly in low margin and smaller businesses.

Scotland

51 company insolvencies were recorded in Scotland in December which is 42 less than the previous month although the total is still 122% higher than a year ago  although down 30% than in January 2020.

This was made up of 14 compulsory liquidations (down from 17 in December); 34 CVLs (down from 73) and three administrations (the same total as last month). For the fourth consecutive month there were no CVAs or receivership appointments recorded.       

Northern Ireland

In January there were 18 company insolvencies in Northern Ireland, double the amount recorded in December 2021. 

There were only three recorded a year ago so this is a rise of 500% but is still down on the 26 recorded in January 2020. 

The total number of cases was made up of 12 CVLs, 3 CVAs, 2 compulsory liquidations and one receivership appointment. 

The total number of UK company insolvencies for January 2021 is 1,629 - an increase of 41 from December 2020.

“A significant number of directors will be increasingly doubtful that their business can survive much longer”

Christina Fitzgerald, Deputy Vice President of R3, the insolvency and restructuring trade body, said: “The increase in corporate insolvencies is being driven by a rise in compulsory liquidations, which were 131.4% higher than this time last year. 

“This suggests that creditors are now starting to take action over unpaid debt, having been legally prevented from doing so since the start of the pandemic. 

“Numbers of Creditors’ Voluntary Liquidations have remained similar compared to this time last month, which suggests that many company directors are continuing to choose to close their businesses rather than attempting to carry on trading in the current climate. 

“The figures published today highlight the toll the current business climate is taking on firms in England and Wales.  

“Over the last two months, businesses have had to trade through a perfect storm of issues which will have affected them and their income. They’ve battled a myriad of factors including new Covid-19 measures, a slowdown in consumer spending and rising inflation with steep increases in energy prices a particular pinch-point. All of these will have taken a toll. 

“After nearly two years of trading through a pandemic, these factors may increasingly become too difficult for many directors to deal with. Against a backdrop of continued pandemic-related uncertainty, there is likely to be a significant number of directors who will be increasingly doubtful that their business can survive much longer.”

Chris Horner, insolvency director with BusinessRescueExpert, agrees. 

He said: “We might be able to look back on this period as divided into furlough and post-furlough as shorthand for all the support measures that were in place. 

“Affected businesses had a portion of their wage bills covered. There were grants and business rates holidays and additional breathing space from creditors with the suspension of winding up petitions. 

“Now we’re about to see the last of these measures being repealed so it’s unsurprising that many of them are going to find the going extremely tough in the next few months. 

“The trend of business insolvencies is clearly rising as creditors are taking a tougher stance now they are able to.

“Business owners and directors are looking at a year of recovery that will be compounded by rising inflation, higher interest rates and taxes and potentially huge energy bills - with no price cap protection that domestic customers will have. 

“Closing a business down is still a perfectly normal and natural part of the business cycle and the acceleration of structural changes such as the increase in online shopping and demand for home working means that we’ll undoubtedly see more in the next few months which makes it even more important to approach properly and professionally.”

That proper and professional advice is always available for any director or business owner who needs it - whenever they want to. 

We offer a free consultation to anybody who needs advice on what they can do to help their business survive and hopefully thrive once they overcome their most pressing issues. 

After virtually meeting or speaking with one of our experienced and expert advisors, they’ll know what options and strategies are available and how they can begin to act.

Business Rescue Expert is part of Robson Scott Associates Limited, a limited company registered in England and Wales No. 05331812, a leading independent insolvency practice, specialising in business rescue advice. The company holds professional indemnity insurance and complies with the EU Services Directive. Christopher Horner (IP no 16150) is licenced by the Insolvency Practitioners Association

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