It looks like they will stay there for a while too

Spring is here and 2022 feels like it has started for real now for many businesses. 

Hopefully they will have started the year strongly and have built some momentum to carry into what could be a difficult couple of months with various obstacles lying ahead. 

The Insolvency Service have published their latest set of monthly company insolvency statistics which show how many businesses entered an insolvency process in the 28 days of February this year.  

The total number of corporate insolvencies for February is 1,515 which although was a decrease of 3.2% from the previous month’s total of 1,565 was still more than double the 685 recorded one year ago (121.2% higher) and 13% higher than the 1,346 recorded two years ago which was the last pre-pandemic monthly total.

This was also the tenth consecutive month when the number of corporate insolvencies was both over 1,000 and higher than the corresponding total in the same month 12 months previously.

Of the 1,515 English and Welsh insolvencies, the overwhelming majority are still Creditor Voluntary Liquidations (CVLs) with 1,329 being recorded last month which is 88% of the total number recorded. 

This is an increase of 125% from a year ago and 40% higher than in February 2020 – the last month before lockdowns began in the UK. 

In addition to this amount of CVLs there were a total of 74 compulsory liquidations (down from 118 in January); 109 administrations (up from 71 last month) and 3 company voluntary arrangements (CVAs) (down from 13 last month). 

A closer break down of these figures shows: 

  • The total of 1,329 CVL’s was higher than a year ago by more than double and 40% higher than in February 2020. While slightly lower than a month ago, this figure is still the fourth highest monthly total recorded since January 2019. 
  • There were 74 compulsory liquidations which is 37% lower than the previous month but 124% higher than February 2021. This is still a lower total than would normally be anticipated because there are still restrictions on winding up petitions and other creditor actions. These are being lifted at the end of this month so these figures are very likely to rise from April onwards throughout the rest of the year.
  • There were 3 CVAs recorded which is 50% fewer than a year ago and 84% lower than the pre pandemic total of February 2020. 
  • 109 administrations were recorded which is a yearly increase of 95% but is still below the total from two years ago by 26%. The total is the highest seen since December 2020 and an indication that some businesses are looking at restructure and recovery as a viable alternative to liquidation. 
  • There were no receivership appointments made in February. 

A statement from the Insolvency Service said: “from the start of the coronavirus pandemic until mid-2021, overall numbers of company insolvencies were low when compared with pre-pandemic levels. 

“While CVL numbers are now higher than pre-pandemic levels, numbers for other insolvency procedures, such as compulsory liquidations for companies remained lower. 

“These trends are likely to to be partly driven by government measures put in place to support businesses during the pandemic including the temporary restrictions on the use of statutory demands and certain winding up petitions which lead to company compulsory liquidations and enhanced financial support for companies through bounce back loans and the furlough scheme.” 

Scotland

There were a total of 73 company insolvencies recorded in Scotland in February. This is 22 more than the previous month and 181% higher than a year ago but down 15% on the last pre-pandemic month of February 2020. 

This consisted of 10 compulsory liquidations (down from 4 last month); 60 CVLs (up 26 from January) and 3 administrations (the same total as January). 

For the fifth consecutive month there were no CVAs or receivership appointments recorded in Scotland. 

Northern Ireland

There were 18 company insolvencies recorded in Northern Ireland which is the same amount as last month. 

This is still a rise of 260% from 12 months ago but a reduction of 33% from pre pandemic 2020.

The total number of cases was made up of 10 compulsory liquidations, 4 CVLs and 4 administrations with no CVAs or receivership appointments this month. 

The total number of UK company insolvencies for February 2022 is 1,606 which is 23 lower than the previous total from January but still 18 higher than December 2021.

“Not the shot in the arm the business community had hoped for” 

Christina Fitzgerald, Deputy Vice President of R3, the insolvency and restructuring trade body, said: “The monthly fall in corporate insolvencies is being driven by a reduction in all types of corporate insolvency process, with the exception of administrations, whose numbers increased to a 15 month high. 

“This increase suggests that there are a number of insolvent businesses which have some prospect for rescue, given this is one of the main statutory purposes of the administration process. 

“Whenever possible the insolvency profession will work to secure the rescue of businesses in administration to help ensure better outcomes for the business, its staff and creditors.

“However, despite the month-on-month decline, the figures released today show corporate insolvency numbers were higher than this time last year and the year before – and that levels of corporate insolvency have remained at pre-pandemic levels. 

“Sadly, the ending of the peak of the pandemic and the lifting of the final set of restrictions hasn’t led to the shot in the arm the business community had hoped for. 

“Although the economy grew in January and firms benefited from restrictions ending in February, it took time for footfall to increase – and will take a while before anything resembling normality returns.

“Consumer spending has declined and consumer confidence is low as people worry about the economy and their own financial position, with inflation now a real problem for firms and individuals alike. 

“This situation is unlikely to improve at any time soon given the impact the war in Ukraine will have on energy costs. 

“In addition to this, the restrictions on using winding up petitions are coming to an end later this month – something which could see an increase in creditors turning to legal action to recover unpaid debts. 

“Now is the time for directors to be alert to the signs of financial distress and to take action if they show themselves. 

“We know conversations about a business’ financial position are some of the hardest to have, but speaking up about your concerns at an early stage typically leads to a better outcome than if you’d waited until the problem worsened.”

High and probably only going to get higher

Chris Horner, insolvency director with BusinessRescueExpert, agrees with this approach.

“We can already look back to March 2020 and see how the decade will be divided into before, during and after Covid as a general shorthand for the timescale and application of the various support measures that were in place such as the furlough scheme and bounce back loans.

“The last of the support measures are being removed at the end of March so the next few months will be more difficult and challenging for a number of businesses. 

“The rate of insolvencies is now higher than they were at the beginning of the pandemic as we see more creditors taking a tougher approach to recovering debts. 

“April will see rising taxes, higher inflation, probably increased interest rates and a widely trailed but still to be felt huge spike in energy prices for businesses – that don’t have the compensation of a price cap that domestic customers have in place. 

“The ability to use insolvency procedures such as administration or a company voluntary arrangement to protect the business will be critical in the next few weeks and months and we’ll be happy to explain to directors and business owners how they can do it with a free consultation – whenever they’d like one.”

While advice is free, taking decisions, or not taking them, incurs costs beyond the financial. 

Every business is different and they all have different strengths and weaknesses to set against the challenges they all face but one thing that applies to them all is that they will have more choices and options once they take professional advice rather than wait until their problems crystalise and become harder to solve. 

Get in touch with us today and take the easiest step on the road to recovery – the first.