What happened in the last month?
April’s was interesting for what it didn’t show – no increase on March’s total but a decrease.
In February 2020 there were a total of 1,348 company insolvencies; up until March 23rd 2020, there had been 1,027 but this dropped to 207 for the rest of the month giving a total of 1,234.
April saw 1,196 which was not only a reduction on the previous month but was also down 17% compared to the 1,435 total of April 2019.
The single biggest driver in this reduction was a huge fall in the number of compulsory liquidations in April 2020 which had reduced by 60% annually, down from 242 to 97.
An informed opinion for this is that it’s due to practical circumstances rather than a material change in behaviour on the part of creditors.
A Compulsory Liquidation requires a winding-up petition which has to be heard and agreed by a court. The same courts that have been running a reduced and virtual service since the lockdown came into effect on March 23rd.
Another contributing factor is the government’s decision to prohibit the use of Statutory Demands and certain winding-up petitions from April 27th to June 30th 2020 inclusively.
The biggest factor by far however, is the wide-ranging support measures being offered by the government under their COVID-19 support effort.
So, why is this happening?
Depending on the sector and size of the company, they will have been able to access grants, loans, offset business rates and VAT and been able to furlough staff that would otherwise have been made redundant.
Each and all of these will have played a major part in keeping otherwise viable businesses alive and being able to fight on when the lockdown is eased and lifted beginning for non-essential retail businesses and others from June 1st.
Sadly, some businesses will inevitably succumb to negative factors and will have to close and others may take the decision themselves but these measures are the main reason why we aren’t writing about a historic jump in the numbers.
The Insolvency Service state that they do not explicitly record whether an insolvency is directly related to the coronavirus pandemic so they are not able to conclusively state that it has a direct effect on insolvency volumes but it indirectly has by influencing some other key factors.
These include HMRC temporarily reducing their enforcement activity to concentrate their resources in processing some of the other elements of the government’s coronavirus economic response; Insolvency practitioners adjusting to new working practices and arrangements in their own business and knock-on effects which have led to delays in documents being provided to Companies House.
It’s reasonable to conclude that all of these have helped reduce expected company insolvencies last month.
There were also annual comparative reductions in the total of Creditors Voluntary Liquidations (down 9%) and every other type of company insolvency (down 3%).
It’s important to know what’s happening in your business and your sector now but it’s equally vital to understand what’s going to happen next – especially now.
We don’t have a crystal ball but we do have a crystal clear understanding of how a business can make sure it’s fighting fit and ready to go when the lockdown eases further or is lifted entirely.
Get in touch with us today to arrange your free virtual initial consultation on how we can help you sharpen every area of your company’s finances so you can approach trading with confidence.