The Insolvency Service have published their final corporate insolvency statistics for the year so we can see real data on how the Covid-19 pandemic and subsequent support measures have affected businesses in the UK.
There were 12,557 underlying company insolvencies recorded in 2020 which was a 27% year-on-year reduction but was also the lowest recorded level since 1989.
This was driven by the lowest number of Company Voluntary Liquidations (CVLs) - 9,418 - which was their lowest annual level since 2007.
Company Voluntary Arrangements (CVAs) - 259 - were down to their lowest levels since 1993 and with only 1,351 Compulsory liquidations recorded, this is the lowest number since 1973 - 48 years ago!
The overall number of company insolvencies in 2020 of 12,557 was primarily (over 75%) made up of creditors voluntary liquidations (CVLs) although these were 22% down on their total from 2019.
Compulsory liquidations were down by 55% year-on-year; Company voluntary arrangements (CVAs) were down 26% and administrations were down 16%.
The Insolvency Service have listed five potential causes for the reductions in company insolvencies - all related to the Covid-19 response efforts. These are:-
The Insolvency Service also notes that it specifically doesn’t record whether an insolvency is directly related to the pandemic so cannot positively state its direct effect on insolvency volumes but the effect on the figures is clearly not coincidental.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates compared to 12 months ago.
The areas that saw the most insolvencies in the 12-month period were construction (2,042); accommodation and food services (1,701) and wholesale & retail trade including repair of vehicles (1,673).
The construction industry traditionally tends to have the highest quarterly insolvency levels but the well publicised woes of the hospitality, hotel and food service industries have propelled them into second place as what would traditionally have been their busiest period was effectively halted.
Colin Haig, President of R3, the trade body for the insolvency and restructuring industry said: “The annual reduction in corporate insolvency levels - to the lowest total figure for more than a decade - has been driven by a decrease in all types of company insolvency.
“The most significant factors behind it are the support measures the Government has introduced for businesses since the onset of the pandemic and the suspension of creditors’ ability to take action against many corporate debtors.
“The government’s Covid-19 support measures and legislation are key drivers on these low insolvency numbers, but they have deferred rather than deterred the full effects of the pandemic being reflected in corporate insolvency levels.
“It’s a question of when, not if, levels of corporate insolvency increase this year, but the timing will depend on when - and how - the government support ends.
“The retail, hospitality and tourism sectors have been particularly badly hit, and we have seen a number of household names enter an insolvency process or announce restructurings in an attempt to mitigate the effects of the pandemic.
“At the moment, with government support still in place and creditors generally sympathetic to the challenges of the business climate, many companies may find they have a precious - albeit temporary - breathing space.
“Now is the time for their directors to think about how they move forward and take advice from a qualified source as soon as they see signs their firm is starting to struggle, or if they’re worried about this year.
“As the saying goes, it’s always worth hoping for the best but planning for the worst, and doing so now will mean you have more options later on.”
We couldn’t agree more.
We can arrange a virtual consultation - totally for free - whenever it’s convenient for you.
While the promise of a return to economic business as usual beckons, it will be many months and weeks before this arrives - if it does - so there’s no better time to act than now.
We’ll help you identify which areas of your business need immediate attention, which can be improved in time and come up with an effective and efficient plan to do both.
Then maybe 2021 will be a real improvement on 2020 for even more reasons.
New figures released from the Accountant in Bankruptcy (AiB) - Scotland’s Insolvency Service - show that there has been an 8.1% increase in the total number of corporate insolvencies from the same period a year ago. This includes receiverships, court liquidations and creditors’ voluntary liquidations but not members’ voluntary liquidations (MVL).
Drilling down further into these categories there has been a 34.2% increase in compulsory liquidations over the same period and a 15.1% increase in MVLs.
Overall there were 966 corporate insolvencies in 2018-19, up from 884 the previous year.
The AiB develops policy for certain aspects of corporate insolvency and is responsible for receiving and recording information on liquidations and receiverships of Scottish businesses held in the Register of Insolvencies (RoI).
The RoI contains details of liquidations and receiverships of Scottish businesses which are wound up in either a Sheriff Court or the Court of Session, which is Scotland’s supreme civil court. AiB is also required to be notified of all company liquidations and receiverships in Scotland.
Duncan Swift, vice-president of R3, the insolvency and restructuring trade body, said: “The jump in the number of corporate insolvencies in Scotland in the last quarter continues a long-standing trend, and indicates that many companies are finding market conditions tough at the moment.
"Many distressed companies, especially in the retail and restaurant sectors, will have put their heads down and tried to get in as much cash as possible over the busy festive period – leaving difficult conversations about future options to the cold light of the New Year.
“Although GDP growth in Scotland in the final quarter of 2018 outpaced the UK as a whole, its expansion rate of 0.3% is still relatively sluggish, and masks a fall in the production sector’s output of 0.9% over the same period."
With the new insolvency rules being introduced in Scotland on 6 April 2019, the accessibility to the processes for companies has largely been improved. Our fees for a scottish liquidation range between £3,150 - £4,500 plus VAT depending on the complexity of the case. Contact our business rescue experts today if you require further advice.
Company receivership is increasingly in decline. From the most recent high of 1,468 receivership appointments at the peak of the recession in 2009, according to the ONS statistics there was only a single administrative receiver appointed in the whole of 2018. Whilst a company having “gone into receivership” is still a common colloquial term, more often than not the company will have actually gone into voluntary liquidation or administration. There to remain several different forms of receivership and this article will cover off the different types to offer clarity on this term.
Administrative receivership, colloquially known as company receivership, is considered a formal insolvency process, unlike the other forms of receivership. The main reason for the decline in appointments of such a receiver is the Enterprise Act 2002. An administrative receiver can only be appointed by the holder of a floating charge over the company assets. Under the Enterprise Act 2002, this floating charge must have been created before 15 September 2003. As a result under floating charges created in the last 15 years these appointments are no longer possible, hence the massive decline.
One of the reasons for the changes is an administrative receiver is only appointed over the assets of a company and acts purely for the floating charge holder. An administrative receiver must be a licenced insolvency practitioner. After the receiver has completed their work, this still leaves the shell of the company, which will likely need to be liquidated before it can be dissolved. The above changes in legislation also improved the accessibility to the administration proceed, and this is now the more likely action the holder of a floating charge will take, if you business defaults on such a charge.
A fixed charge receiver is appointed by the holder of a fixed charge, properly registered at companies house. Unlike a an administrative receiver, a fixed charge receiver does not need to be a licenced insolvency practitioner, and is more likely to be a chartered surveyor. Where a floating charge covers substantially all the assets of a company, a fixed charge is specific in what it covers, therefore this type of receiver will only be appointed to realise one of more particular assets within the company.
An appointment as a fixed charge receiver can cover:
In the event you have defaulted on a fixed charge and a receiver has been appointed, if you are an SME, this can effectively cripple your business, forcing you to sell the remaining assets to pay off creditors. In order to achieve the maximum value for the assets, you may be able to work with the receiver to arrange a sale of the business as a whole entity. This may at least leave you with sufficient funds to pay your remaining creditors. If however the value of the assets is significantly less that the total value of your creditors, making your company insolvent, it may be necessary to place the company into formal insolvency such as voluntary liquidation or administration, in order to protect your position.
A Law of Property Act receiver, commonly referred to as an LPA receiver, is a type of fixed charge receiver, in that they do not need to be an insolvency practitioner, but will more commonly be a chartered surveyor, generally 2 surveyors who are jointly appointed. There are again less instances of when a LPA receiver can be appointed, being that they can only be appointed over land or buildings.
Once an LPA receiver is appointed, they have specific powers which are set out in the Law of Property Act 1925:
As the legislation is closing on being 100 years old, and yet is still a commonly used recourse, additional powers can be delegated under the charge or mortgage the appointment is made under. These powers generally include:
One of the more unusual rights which is also worth being aware of is the power to cut down any appropriate trees on the property so they can be sold for timber. A LPA receiver being appointed over an orchard therefore could yield serious consequences.
Regardless of whether the charge holder is commencing the process for company receivership, or simply appointing an LPA receiver, the main appeal of the process to them is how quickly the appointment is made. The main warning the action is imminent will be receipt of a default letter, demanding the full balance due under the charge. Once this period has expired, which may be as little as 48 hours, to make the appointment there is a simple passing of correspondence between the charge holder and the receiver confirming acceptance of the appointment.
Due to the speed of this process, the first you will generally be aware a receiver of any kind has been appointed is when they attend the premises to secure the assets in question. Whilst it is possible to liaise with the charge holder, when your business is in financial difficulties, to request they appoint a receiver, may not be the best solution as it will only deal with secured liabilities. You should take your own advice to find a solution that suits your business as a whole, dealing with all of its creditors. Our business rescue experts can be contacted to discuss the best solutions for you, creating a solution to suit your business as a whole, not just a single creditor.
Dependant on the severity of financial difficulty, a corporation may be able to escape company insolvency and the threat of a winding-up petition. We have outlined possible options for companies that believe they are at the end of their business life.
A CVA, or Company Voluntary Arrangement, is a formal ‘arrangement’ between the company facing difficulties, and their creditors, for the reorganisation of the business debts over a set time. The contractually binding arrangement allows the company to repay creditors only what it can afford, based on what its cash flow allows. The arrangement is in full and final settlement with any outstanding balances being written off, while your interests and charges are frozen with a CVA.
A Company Voluntary Arrangement is often not the most suitable restructuring tool for your business, and they only account for a small amount of processes in the insolvency market. However, if it is chosen, a licensed insolvency practitioner will create a proposal for the creditors, asking them to consider accepting smaller payments as opposed to facing a full write off in liquidation. It’s important to note that 40% of CVA’s fail, so look into all options before considering a CVA.
Administration is a favourable option for businesses which may be turned around. You enter administration with the aid of a licensed insolvency practitioner, who will detail a recovery plan for your company - generating a better return to creditors. Administration also means that any legal action against your company is frozen, leaving your company with space to plan and attempt to deal with debts.
Entering the administration process is considered the best deal for creditors, as funds realised in administration are higher than in liquidation. The moratorium allows the company breathing space to produce a better outcome for the creditors. This procedure can also add credibility to that of the pre-packaged sale of the business, used to shed historic debt which could be holding back the business. More on this insolvency procedure can be found with our Advantages and Disadvantages of Administration article.
Liquidation is the legal process of ending the company. The business will not employ people or continue to trade.
Members’ voluntary liquidation, or MVL for short, refers to the process initiated by solvent companies to close their business. After this is done, the proceeds of the sale are distributed to shareholders. Alternatively, Creditors’ Voluntary Liquidation involves closure of a company that is insolvent but still done so voluntarily. However, the proceeds of this sale are returned to the creditors.
As this is also a formal insolvency process, it must be carried out by a licensed insolvency practitioner, putting in place certain time restrictions and legal obligations for the business. If you are one of the many UK companies that have been issued a winding-up petition or is facing the threat without looking into advice; we have produced a Voluntary Liquidation vs Compulsory Liquidation post to plan your next steps.
A winding-up petition is one of the most damaging threats any business can take. A winding-up petition refers to a creditor actively seeking a court order for winding up of a company. We have more information for any business that may be facing this prospect, with our timeline of a winding-up petition.
The process of administrative receivership, or receivership, is started by a holder of a charge, such as a bank. The administrative receiver (private insolvency practitioner), aims to recover enough money to pay the preferential creditors (employees of the company etc.), as well as the floating charge holder’s debt and their own costs. The court is not typically involved.
We have outlined the differences between Administration and Receivership for those that may not understand both insolvency procedures.
If you believe your company could soon be deemed insolvent, the first thing you must do is get in touch with someone who can outline all of your possible options and aid in the attempt of business recovery. The longer you wait, the more costly it is for the company as well as risking personal liabilities for trading whilst insolvent.
Administration’s primary goal is to help the company pay off their debts, thus avoiding entering liquidation - at least in the first instance. Receivership works to realise the assets of a company, to maximise the benefit for the secured creditors.
Receivership will usually result in the company also entering liquidation at the same time.
In modern insolvency, receivership shows such a heavy bias to the secured creditor, that they are now only permitted to appoint administrative receivers in relation to floating charges created and registered before 15 September 2003.
For charges created after this date, only the administration process may be used with the administrator owing a duty to all creditors, rather than just the secured creditor.
Administration is a favourable alternative to liquidation. A licensed insolvency practitioner is appointed as Administrator for a company facing threats from creditors.
The Administrator takes control of the business operations, to act in the best interest of creditors. In entering Administration, a moratorium is also placed around the company to freeze all legal actions.
An Administrator can be appointed by the company directors, the secured creditor or even the company itself. Where receivership will often be terminal for the business, administration is widely viewed as the preferred rescue procedure.
Administration typically delivers higher returns to creditors from company assets, and saves jobs where possible. You can find out more about the administration process with our seven key stages infographic.
Receivership differs from Administration, as the latter works to protect companies from their creditors. Whereas, Receivership is initiated by those creditors or banks that believe the business cannot pay its debts. Unlike in administration, directors cannot place their own company into receivership.
The direction the company will eventually follow is, ultimately, decided by the receiver. The receiver will also not often take advice from directors, and will investigate their conduct.
However, receivership does not terminate the powers of the directors in relation to the company, but only the charged assets. This means that the directors still can, and usually will, need to place the company into liquidation to deal with any shell of a company.
From a company point of view, there are few benefits to receivership.
The business will likely not be rescued as it is, and the assets may be sold on at a reduced price to recoup as much as possible for the creditor, or bank, that appointed the Receiver.
The directors may also lose employment, be investigated and unsecured creditors will, most likely, not receive their money back. However, the Receiver can act fast and, if the directors are not found guilty of misconduct, receivership can solve their difficult position and allow them to walk away.
On the other hand, there are still options for the company with administration. The appointed Administrator takes control of business operations and details a recovery plan, including paying off the debts (as much as is possible) and looking for opportunities that could save the company. These opportunities could include reviewing whether a company voluntary arrangement is a viable alternative to resolve the situation.
Although it is now seldom available as a remedy, it is important to be aware whether a secured creditor is able to appoint a receiver over your company.
Due to the public image of administrative receivership, banks now prefer to appoint Administrators, even if they are able to appoint Receivers. This way, it appears they are still trying to help the business save jobs, rather than taking the company apart to ensure their debt is paid.
In truth, it is far more common for a company to enter creditors voluntary liquidation than either of the above processes.