Insolvency figures released for May 2021 by the Government’s Insolvency Service show a slight increase in corporate insolvencies compared to the previous month but continue to show a trend of low corporate insolvencies compared to pre pandemic levels.

Corporate insolvencies - tougher times ahead as insolvencies forecast to rise

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 the summer while government support schemes remain available as well as the temporary restrictions on the use of certain creditor enforcement actions. 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.

“One of these temporary restrictions, namely the moratorium on issuing winding up petitions, is due to end on 30 June 2021 which, if not pushed back again, could trigger a sharp rise in corporate insolvencies in the coming months as creditors will be able to enforce their rights again. The end of the furlough scheme is also due at the end of September 2021, which will put further cash flow pressure on some companies in the region and will likely increase insolvencies in the last quarter of 2021 and the start of 2022.

“Those businesses in the region that were expecting lockdown measures to be lifted on 21 June will be at particular risk. Another month of closures without any additional government support could be the tipping point.

“As lockdown measures start to ease next month and a number of businesses 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.

“With an 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.”

A message to company directors

Oliver 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.”

*May 2021 insolvency numbers - breakdown

In May 2021 there was a total of 1,011 registered company insolvencies, which was 7% higher than in the same month in the previous year, driven by a higher number of CVLs. However, this number remained 25% lower than in May 2019 (pre-pandemic). Of the 1,011 registered company insolvencies in May 2021:

  • There were 31 compulsory liquidations, which is 6% lower than May 2020 and 89% lower than May 2019;
  • 930 were CVLs, which is 18% higher than May 2020 but 3% lower than May 2019;
  • Six were CVAs, which is 50% lower than May 2020 and 81% lower than May 2019;
  • There were 43 Administrations, which is 61% lower than May 2020 and 55% lower than May 2019; and
  • There was one receivership appointment.