What do the latest insolvency statistics mean?

Halloween last year might have been a damp squib compared to previous years and the same might be said of anybody expecting a big shock when it came to the numbers reported.
One of the best things about watching horror films for the first time is trying to anticipate when the twist and surprise will come.  Sometimes the director will stretch out the tension with false set ups where you expect a jumpscare but when the main character opens the cupboard door… suddenly nothing happens.
This means that when the real scare arrives it’s more unexpected and effective and in a movie, this will be true. When the same happens in the wider economy the consequences will be more serious than some spilled popcorn. 
In October there were a total of 856 company insolvencies in England and Wales with an additional 44 in Scotland and 8 in Northern Ireland. Even added together, these 908 insolvencies are still less than the previous month. 
The 856 total is made up of 672 Creditors Voluntary Liquidations (CVLs); 59 compulsory liquidations; 104 administrations and 21 Company Voluntary Arrangements (CVAs). 
This is down 42% on the same month last year and is primarily driven by the big fall in CVLs and compulsory liquidations which are down 36% and 76% respectively. CVAs are down 42% for the same period too. 
As we’ve previously written on the topic, all types of company insolvencies have fallen in consecutive quarters this year and this trend continued in the first month of Q4.  
Company Voluntary Liquidations (CVLs) continue to be the most common insolvency process continuing to account for nearly three quarters of all procedures. 
The continuing small recorded numbers of both CVAs and administrations is still surprising on the surface but simple explanations exist.  
Firstly, financial support available to companies during the pandemic continues to be extended which will keep some businesses operating that would otherwise look to restructure or liquidate themselves. 
Additionally, the suspension of statutory demands and winding-up petitions until the end of 2020 under the Corporate Insolvency and Governance Act makes it harder for creditors to take enforcement action, along with the fact that the courts are still running a skeleton system and won’t be back to anything resembling a full service and schedule until next year at the earliest. 
The figures also show that so far only two companies have obtained an insolvency moratorium and one company had a restructuring plan sanctioned by the court. 
Both of these are new legal procedures but they could give companies adopting them big advantages going ahead in their efforts to rescue themselves and resurrect their long-term profitability prospects.  

“Gravity cannot be defied forever”

Colin Haig, President of R3 – the insolvency and restructuring trade association, said: “The continued low levels of corporate insolvency can once again be traced back to high levels of Government support and widespread creditor forbearance, both compelled and voluntary.
“With many creditors at present prevented by law from taking enforcement action, the usual triggers for seeking advice on dealing with an urgent debt problem are largely absent.
“With corporate insolvency numbers still far below their pre-pandemic levels, worries are mounting within the profession that a wave of business closures could be on the horizon, made up of both companies which would have become insolvent in the normal scheme of things along with businesses dealt a fatal blow by the pandemic.
“Gravity cannot be defied forever, and – with temporary measures stopping creditor enforcement actions against debtors due to expire at the end of the year – the first few months of 2021 could turn out to be difficult ones for large swathes of businesses which have built up arrears with landlords, suppliers, or the taxman.”   
One thing that can be assured about scary movies is that the shock does eventually arrive and when it does, it’s usually a big one. 
You don’t have to be Stanley Kubrick to realise that it will be the same with insolvencies when all the various support systems and guard rails are removed. 
It’s also a fair assumption that at this point there will be a lot of businesses scrambling for help and support but it might already be too late for them. 
The smart and proactive ones will already have their support plans and restructuring help already in place to avoid a messy or chaotic reckoning.
Get in touch with us today to help build your survival strategy.

We can arrange your free initial virtual consultation to help bolster and buttress your business right now before any problems become critical.