Insolvency figures released today for September 2021 by the Government’s Insolvency Service show a 56% increase in corporate insolvencies compared to the same month last year (1446 in September 2021 and 928 in September 2020).
In September 2021 there were 1,328 Creditors’ Voluntary Liquidations (CVLs), which is the highest level seen in the series since January 2019. The number of registered company insolvencies was similar to pre-pandemic levels, driven by this higher number of CVLs, although other types of company insolvencies, such as compulsory liquidations, remained lower.
Challenging winter ahead as corporate insolvencies forecast to rise
Leading restructuring and insolvency professional, Oliver Collinge from PKF GM said, “The surge in corporate insolvency numbers is not surprising. The last few months have seen the lifting of the final lockdown restrictions and many businesses have now started to repay BBLS and CBILS loans as well as deferred HMRC liabilities.
“The well documented issues around higher inflation, staff shortages, increasing energy prices and the need to repay Covid incurred debt, is likely to lead to increased numbers of insolvencies over the next 12 months.”
These challenges will put multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid, so 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
Collinge continued, “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 that are struggling, 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.”
Personal insolvency and increase in Debt Relief Orders
For individuals, 614 bankruptcies were registered, which was 42% lower than September 2020 and 55% lower than September 2019.
However, the number of Debt Relief Orders (DROs) in September 2021 was at its highest level since the start of the pandemic, with 2,150 DROs registered, following changes to the eligibility criteria on 29 June including an increase in the level of debt at which people can apply for a DRO from £20,000 to £30,000. The number of DROs registered was 41% higher than September 2020 but remained lower than pre-pandemic levels (12% lower than in September 2019).
Collinge added, “The end of the furlough scheme and increases in energy and food prices are pushing individuals into formal insolvencies. With the proposed 1.25% increases in NI next year, we can expect to see these numbers continue to rise. Many families are under financial stress and we may well see reduced spending on the high street over Christmas as individuals brace themselves for a tough year in 2022. This will also have a knock on effect on those businesses, particularly in the hospitality, leisure and retail sectors, who are depending on a surge in Christmas spending.”