Company insolvency statistics continue to defy gravity but an increase in IVAs shows that personal finances are beginning to take a hit as the impact of the pandemic starts to hit.

Insolvency figures released last week by the Government’s Insolvency Service show a 23% drop in corporate insolvencies compared to April last year, and a 35% drop compared to April 2019.

Conversely, Individual Voluntary Arrangements (IVAs), used by individuals in personal financial difficulty, were up 22% for the three months to the end of April 2021, compared to the three-month period ending April 2020.

Corporate insolvencies - the calm before the storm
Leading restructuring and insolvency professional, Oliver Collinge from PKF GM in Leeds said:

“We expect this trend of low corporate insolvency numbers to continue into June and July while government support schemes remain available. However, the tide is likely to turn soon and it is inevitable that they will return to at least pre-pandemic levels in the future.

As lockdown measures start to ease and a number of businesses in Yorkshire that have been closed for most of the last year start to reopen, we expect more businesses in the region will need to consider what future funding they will require if sales do not quickly return to pre-pandemic levels.

This period is definitely the calm before the storm. Insolvency levels will rise when that funding is no longer readily available through the government schemes and creditors are once again able to enforce their rights. With increased working capital requirement on re-opening, there will be multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid.

It’s critical businesses act early and seek advice if they are struggling now, or think cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover.”

Personal insolvency levels
Oliver Collinge added: “The increase in IVAs is an indicator that personal finances are coming under increasing pressure after a year of lockdown and furlough. It’s hard to tell from the data, but it’s possible that company owners and directors that have been unable to access government support, as well as those that have lost their jobs, are entering formal arrangements such as an IVA to deal with mounting debts.

As the economy starts to reopen, many businesses in Yorkshire are banking on pent-up consumer demand to make up for lockdown closures. But this increase in IVAs suggests that, whilst savings have undoubtedly grown for many during lockdown, a significant number of people have found their personal finances seriously weakened. History has shown that when people feel under pressure financially, this does affect the recovery of businesses. The high street may find that despite shops opening up again, they may not get the return to the same level of customer spending they had before.”

A message to company directors
Oliver Collinge added: “There are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy; don’t leave it too late. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.”

“For those businesses who have just reopened, now is a good time to begin negotiations with landlords and creditors to develop manageable repayment plans. Will revenues be high enough to support your cost base? Will cash flows be sufficient to deal with the additional debt burden (both formal and informal) that has accrued during lockdown? Perhaps a CVA is something which should be considered or, where you may need to take the difficult decision to make redundancies to survive, consider applying for government funding to meet the short term cash impact of this.”

*April 2021 insolvency numbers - breakdown

In April 2021 there was a total of 925 registered company insolvencies, comprised of 819 CVLs, 26 compulsory liquidations, 75 administrations and 5 CVAs. There were no receivership appointments.

The overall number of registered company insolvencies in April 2021 was 23% lower than in the same month in the previous year and 35% lower than in April 2019.

In April 2021, when compared with the number of company insolvencies registered in April 2020 and April 2019:

  • Compulsory liquidations were 74% lower than 2020 and 89% lower than 2019;
  • CVLs were 12% lower than 2020 and 20% lower than 2019;
  • CVAs were 76% lower than 2020 and 81% lower than 2019; and
  • Admi****nistrations were 48% lower than both 2020 and 2019