Company insolvencies rise as Government support tails off

Insolvency figures released for July 2021* by the Government’s Insolvency Service show a 13% increase in corporate insolvencies compared to the same month last year (1094 in July 2021 and 965 in July 2020). However, insolvencies are 24% lower than the number registered two years previously (pre-pandemic; 1,442 in July 2019).

Leading restructuring and insolvency professional, Oliver Collinge (pictured) from PKF GM in Leeds said: “This trend of rising corporate insolvency numbers is not surprising. Last month saw the lifting of the final lockdown restrictions and many businesses in the region will now have to start making payments in relation to their BBLS and CBILS loans.

We expect the numbers to continue to rise as furlough comes to an end and the temporary restrictions on the use of certain creditor enforcement actions are lifted. It is inevitable that insolvency numbers will return at least to pre-pandemic levels relatively soon and possibly higher for a period of time.

“One of these temporary restrictions, namely the moratorium on issuing winding up petitions, is due to end on 30 September 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.”

“There will be multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid.”

“It is 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 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 recently reopened, now may be the 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.”

*July insolvencies

Of the 1,094 registered company insolvencies in July 2021:

There were 1,007 CVLs, which is 70% higher than in July 2020 but the same as in July 2019;
41 were compulsory liquidations, which is 77% lower than July 2020 and 84% lower than July 2019;
Six were CVAs, which is 65% lower than July 2020 and 85% lower than July 2019;
There were 40 Administrations, which is 78% lower than July 2020 and 73% lower than July 2019; and
There were no receivership appointments.