Everything you need to know about them
Because these aren’t normal economic circumstances however, they need some large asterisks next to them.
The overall number of company insolvencies was down 23% based on the first quarter of the year and down a third (33%) on the same period last year.
There were a total of 2,974 company insolvencies in England and Wales for the quarter – down from 3,848 from Q1 2020 and 4,425 from Q2 2019.
There were 195 compulsory liquidations (down from 707 in Q1); 2,346 creditor voluntary liquidations (CVLs – down from 2,673); 386 administrations (down from 398); 47 company voluntary arrangements (CVAs – down from 47) and one receivership which is at the same level.
Creditors Voluntary Liquidations form the vast majority of company insolvencies making up 79% of all cases. These were down 12% on the previous quarter and down 24% from the same period a year ago.
Compulsory liquidations saw the largest percentage decrease of all categories with a reduction of 72% on the last quarter and 76% from Q2 2019. Company voluntary arrangements were down 32% from Q1 and nearly half from 12 months previously while administrations saw a slight reduction of 3% from Jan to Mar this year and a 10% decline from Q2 2019.
Now clearly the effects of the coronavirus pandemic and subsequent lockdown are working their way through the system but this can’t solely explain the precipitous drop off in activity.
There are four main factors at work that are reducing the expected rate of company insolvencies:
- The courts are running a reduced service meaning that cases are not being heard at anything like their usual volume. HMRC enforcement activity has also been vastly reduced since nationwide lockdown was applied on March 23rd.
- Temporary restrictions were placed on the use of statutory demands and certain winding-up petitions between April 27th and September 30th as part of the Corporate Insolvency and Governance Act 2020.
- A range of enhanced government financial support for companies was made available including the Coronavirus Job Retention Scheme (CJRS), Bounce Back Loans and various grants and other measures.
- Financial service regulators have also been advising that businesses in financial difficulty should be treated with forbearance and due consideration so the appetite for recovery and forced insolvency may not be as strong as under regular conditions.
The Insolvency Service have also been at pains to point out that they are not recording whether an insolvency is directly related to the pandemic so cannot state with any certainty its direct effect on insolvency volumes.
In the coming weeks and months this grey area will become highly scrutinised as statisticians and policy makers look to find evidence and justification for existing and future policies.
While every industry saw a reduction in the number of redundancies in their sectors, construction still had the highest number with 2,778 insolvencies. Wholesale & Retail Trade saw 2,177 while Accommodation & Food Service – comprising the hospitality and restaurant industries – had 2,026.
Additionally 176,115 new company incorporations were recorded in the UK which is an increase of 3.7% on the previous quarter.
There were only 14,606 dissolutions recorded in Q2 which is a huge fall of 89% on the previous three months. This was accredited to the easing measures listed previously.
While the unexpected good news is as welcome as August sunshine, it will also inevitably give way to chillier Autumn weather and probably chillier still insolvency numbers.
Your business is not a number – it’s made up of hard-working people that you might have employed for years and you’ll do everything you can to keep them and your company together.
Get in touch with us now while you’ve got some time and we can work with you to see what options you’ve got to make sure your business makes it through the rest of 2020 and beyond in the best possible shape.
A free initial, virtual consultation could be the ideal place to talk through your ideas, outline your concerns and begin to reshape your business for the change economic environment it will inevitably find itself in.