Latest Company Insolvency Statistics released – what do the show?
An important one for us is the publication of insolvency statistics.
In the swell of regular announcements and opinion columns, the actual numbers and facts help us determine exactly what’s going on with the economy as far as we can and why.
The Insolvency Service decided that they’d publish company insolvency data on a monthly basis alongside their regular quarterly bulletins so while it might seem like there’s an avalanche of analysis – it’s important and useful.
2020 hasn’t so much been a rollercoaster ride for company insolvencies as a log flume – only going downhill and fast.
The overall number of company insolvencies from July to September was 2,672 – which was down 9% on the previous quarter and down 39% on the same period of 2019.
When compared to Q3 2019, all types of company insolvencies have fallen although this is mainly due to the fall in Company Voluntary Liquidations (CVLs) which is by far the most common type of company insolvency accounting for 72% of all cases.
It’s hard to make concrete assumptions but the most likely explanation for these falls is the financial support available to companies during the pandemic which became available in March coupled with a suspension of statutory demands and winding-up petitions from late April until the end of 2020 under the Corporate Insolvency and Governance Act.
The picture is more complicated when looking at the previous quarter of this year.
Overall company insolvencies have fallen and CVLs are down 17% but compulsory liquidations rose by 42% and CVAs by 34% – although as the numbers are relatively small, any rise in the number of cases would have a dramatic impact on percentages.
For example, there were 63 CVAs in Q3 2020 which itself is one of the lowest levels ever recorded but they are higher than the previous quarter total of 47 which itself was the lowest quarterly total since Q3 1993.
A compulsory liquidation can only take place following a winding-up order obtained through the court by a creditor, shareholder or director. HM Courts & Tribunals service has been running a vastly reduced service since March so this number has fallen greatly as a result.
Just over half of the compulsory liquidations carried out in Q3 2020 had a petition date in Q1. The Insolvency Service estimated that the recent increase in cases was due to petitions being resumed prior to the first national lockdown.
Administrations rose slightly in this quarter to 396 from 389 in the previous one and there was one administration – exactly the same number as Q2 2020 and Q3 2019.
Additionally two companies obtained an insolvency moratorium and one company had a restructuring plan sanctioned by the court. Both of these new procedures were created under the Corporate Insolvency and Governance Act and the use of moratoriums is expected to increase in future reporting periods as more businesses take advantage of them.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates in the 12 months ending in Q3 2020.
The areas that saw the most insolvencies in the 12-month period were construction (2,381); wholesale and retail trade (1,924) and accommodation and food services (1,797)
Although the effect on the hospitality industry of a second lockdown in their traditionally busiest period will be something to watch for in the next round of statistics.
Companies House also released some pertinent statistics last week – the incorporated companies numbers for Q3 2020 which provide a snapshot of the number of active companies in the UK in the past three months.
Like the suspension of winding-up petitions, there was a pause in the voluntary and compulsory strike-off process in April in order to give Covid-19 affected businesses sufficient time to update their records to avoid being struck off the register.
Voluntary strike-offs were resumed early in September so companies that applied to be struck-off or dissolved before July were included in the numbers.
By the end of September, there were 4,663,639 companies on the register with 221,020 new incorporations last quarter compared to 102,269 dissolutions.
This is a 30.2% rise in incorporations on Q3 2019 and the largest Q3 annual increase since 2012 when records began while dissolutions fell by 21.2% annually.
These figures are in contrast to the final significant statistics release this week which came from the Office of National Statistics ongoing Business Impact of Covid-19 (BICS) survey.
This is a fortnightly business survey which measures businesses’ responses on turnover, trade and other measures in this period.
Their latest bulletin has the striking headline finding that two-thirds of all UK businesses are at “low to severe” risk of insolvency. The underlying evidence showed that 64% of respondents are at risk of insolvency with 43% running on less than six months’ cash reserves.
This is on top of 14% of all UK businesses pausing trading due to local lockdown restrictions.
They rate the hospitality industry as the most vulnerable with 17% of all accommodations and food companies as trading at severe risk while a further 7% of all pubs, restaurants and hotels having zero cash reserves to support them.
Chris Horner, Insolvency Director with Business Rescue Expert, said: “The figures are always interesting taken separately although because of the time lag they are a little inexact – telling us where we were rather than where we are right now.
“One thing we do know for certain is that the current circumstances depressing overall company insolvencies is changing.
“Winding-up petitions are still limited but, other types of enforcement action are coming back online for creditors to use and the suspension on wrongful trading liability has also recently expired.
“Following the unwelcome Halloween surprise of a new national lockdown a lot of businesses will be hoping that there’ll be more financial support forthcoming than a month’s extension to the Coronavirus Job Retention Scheme (CJRS) Furlough scheme.
“They might be disappointed and looking at a minimum of four weeks with no income through no fault of their own.
“One action they can definitely take right now is to take professional advice on what their options are. Early action can help them put measures in place that will help secure their business so it can be on a stronger footing when it’s allowed to reopen.”
We can arrange a free initial virtual consultation to better understand your company’s situation right now.
Together we can then work on a realistic recovery or rescue plan which will aim to give your business the best chance of making it through 2020 and beyond.