What goes up… Company insolvencies fall back in first three months of 2021
The Insolvency Service have published their first quarterly bulletin of the year revealing the total number of company insolvencies reported in January, February and March and the finding continues to surprise.
In our analysis of the last quarter’s figures we said they resemble a ski jump – increasingly downhill before a sharp uptick at the end. Well this analogy continues because after a skier launches themselves into the air, they continue to fall downward.
Which is what is happening to the number of insolvencies.
The overall number of company insolvencies for England and Wales from January to March 2021 was 2,384 – 22% lower than the previous quarter and 38% lower than the corresponding quarter from last year – which straddled the pre and post lockdown economy.
Breaking down further the total number of insolvencies we see that creditors voluntary liquidations (CVLs) still remain the most frequent method of insolvency by far with 2,047 procedures in the first 12 weeks of the year – 86% of all company insolvencies.
This is a decrease of 18% from the previous quarter’s figures and down 24% on the same period in 2020.
There were 108 compulsory liquidations which is down 26% on the last three months of 2020 and down a huge 86% on 2020’s Q1 figures. The number of administrations remains at a low total with 192 – down 44% on the previous quarter and by more than half – 52% – on the corresponding timescale from a year ago.
We only saw 37 Company Voluntary Arrangements (CVAs) in the first three months of 2021 which is down by 54% at the end of 2020 and down 46% in Q1 2020. There were also no receivership appointments recorded in the previous six months.
The Insolvency Service continues to think of new ways to restate the logical reasons why the overall numbers continue to remain low.
A combination of a range of government backed financial support measures such as the bounce back loan scheme, an ongoing suspension on creditor recovery actions such as statutory demands and winding up petitions and courts operating below their usual functioning levels have all contributed to the overall picture.
The liquidation rates (per 10,000 active companies) gives us a clearer picture of the broader trends at work as they indicate the probability of a company entering liquidation rather than the number that actually have.
They are immune to one-off fluctuations or other factors and are more comparable over longer time periods than absolute figures.
In the four quarters that ended in Q1 2021, the company liquidation rate was 25.3 per 10,000 active companies in England and Wales. This is the equivalent of 1 in 396 businesses being liquidated in the previous 12 months.
This is down 3.9 on the previous quarter when the rate was 29.2 per 10,000 active companies and down 15.3 on the corresponding quarter in 2020 when the rate was 40.5 per 10,000 businesses.
When it came to the individual sectors of the economy, all saw a decline in insolvency rates compared to 12 months ago.
Looking at the 12 month period ending at Q1 2021 the three industries that saw the highest number of insolvencies were:
- Construction – 1,721 insolvencies; 16% of all cases recorded
- Wholesale and retail trade – 1,425 insolvencies; 13% of all cases recorded
- Accomodation and food services – 1,404 insolvencies; 13% of all cases recorded
The construction industry tends to have the largest number of insolvencies than any other sector but the total number in the past 12 months is 44% lower than the previous period.
Chris Horner, Insolvency Director with Business Rescue Expert, said: “Given that company insolvency figures started rising again the previous quarter, it’s a little surprising to see them fall back again.
“Some coronavirus support measures remain in place but others such as the bounce back loan scheme are seeing repayments start and while businesses will begin to trade more freely, they will also have to start paying business rates, VAT arrears and other bills again too.
“The total number of corporate insolvencies between April 2020 and March 2021 fell by more than a third compared to the same period a year earlier, while GDP fell nearly 8% at the same time.
“A drop in corporate insolvencies during an economic climate like that tells us that it’s still a case of when, not if, insolvency rates begin to rise again, and how quickly.
“By the time the Q2 statistics are released at the end of July, we’ll have a far clearer picture what the insolvency landscape will look like for the rest of the year, especially as the majority of the business support measures end in June.
“We’d definitely advise directors and business owners that are unsure or worried about the prospects for their business to get in touch now to get some advice while they have time to implement any changes that are needed.”
The thing with trends and movements is that by the time the majority of people notice them, they are already well underway.
Once company insolvency figures start to rise this year, it might come as a big surprise for some – especially if they haven’t been paying attention.
That’s why it’s our job to keep you informed about all the big insolvency stories and news as it happens so our clients have a broader view of the state of play in their industries and the wider economy beyond.
Getting your plans in order now and making the decisions and changes that you need to means that when the wind does eventually change, your business won’t be blown away in the storm whenever it arrives.