Corporate insolvencies down year-on-year, but bleaker picture lies behind numbers

Official figures released today (May 15) by the Insolvency Service, which are being published monthly for the moment, reveal that 1,196 companies collapsed into insolvency last month, representing a drop of 17 percent compared to April 2019.

This April total consisted of:

• 933 creditors’ voluntary liquidations (CVLs),
• 97 compulsory liquidations
• 144 administrations
• 21 company voluntary arrangements (CVAs)
• One receivership.

But the figures emerged against a backdrop of the moratorium for distressed business to explore rescue and financial restructuring options. The figures also appeared in the context of a recent study that claimed half a million small business were in significant financial distress in Q1 (according to Begbies Traynor), while the Office for National Statistics said around one in four firms had closed temporarily by April 17.

Another factor is that since the UK lockdown was applied on the evening of March 23 to slow the spread of the coronavirus, the HM Courts & Tribunals Service has reduced the operational running of the courts.

The government also announced in late April that it would prohibit the use of statutory demands and certain winding-up petitions from April 27 to June 30 2020

The Insolvency Service’s figures show nevertheless that there was a nine percent decrease in the numbers of CVLs in April 2020, when compared with April 2019, and a three percent fall across all other types of company insolvency.

This was driven by a decrease in the number of compulsory liquidations in April 2020, which fell by 60 percent, when compared to April 2019.

While the volume of new company and individual insolvencies increased for most insolvency types in April 2020 when compared with pre-lockdown March figures, numbers of insolvencies in April 2020 were lower than in April 2019.

During the first three weeks of March, prior to the UK lockdown on the 23rd March, an average of 66 company insolvencies were registered daily.

In the remaining six working days following lockdown in March, the average daily number of company insolvencies registered had halved to 30. This reduction is linked to short-term capacity constraints at Companies House as it deployed safe processes to manage work on-site; and delays in documents being provided to Companies House by insolvency practitioners,

Christina Fitzgerald, vice president at insolvency trade body R3, said the first monthly insolvency figures do not yet provide a clear picture of how the pandemic is affecting insolvencies.

She added: “As the Insolvency Service notes, there are several complicating factors at play: some corporate insolvency procedures take time to get underway, while the changes to the normal operating of the courts have meant many civil proceedings have been halted.

"The government’s support measures and policies for businesses and individuals have undoubtedly helped many stay afloat. Additionally, companies which planned for disruption in the case of a no-deal Brexit may find their preparations coming in handy to tackle disruption from a different source.

Fitzgerald explained that the enquiries R3 members are receiving are mainly for advice and support, rather than necessarily for COVID-induced insolvency processes. "Directors want to understand how to manage their cashflow and what options are open to them operationally, consumers want advice, and both groups want to understand the finer points of the government’s support measures and what they mean for their circumstances," she added.

She also explained that the corporate insolvency procedures which have been initiated since the pandemic hit, meanwhile, are mostly those of companies which were already in financial distress pre-lockdown, for whom the freezing of normal operations delivered a final blow.”