Quarterly insolvency statistics released last Friday for Q3 2021* show that the number of company insolvencies was 17% higher than in Q2 2021 and 43% higher than in Q3 2020.
Oliver Collinge, restructuring expert at PKF GM said, “The quarterly upturn in corporate insolvency appointments is not surprising, given the recent withdrawal of Government support measures put in place for both companies and individuals in response to the pandemic, including the furlough scheme and temporary restrictions on the use of winding up petitions. Many businesses have also now started to repay BBLS and CBILS loans as well as deferred HMRC liabilities”
“The biggest increase can be seen in Creditors’ Voluntary Liquidations, where directors have chosen to place their business into an insolvency process. In part this may be because creditors can now take enforcement action, forcing directors to take action.”
“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 in the next quarter.”
“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.”
Speaking about the Autumn Budget support Collinge said,“Businesses in the hospitality, leisure and retail sectors which have been severely impacted by the pandemic, will have welcomed the announcement in last week’s Autumn Budget of a temporary 50% cut in their business rates, up to a maximum of £110,000.”
“This is a positive step however these sectors in particular remain extremely vulnerable due to rising overhead and wage costs, in addition to the staffing crisis. Taking professional advice early will be critical to the survival of many businesses in the months ahead.”
In a message to company directors, 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 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.”
After seasonal adjustment (where applicable), there were 3,765 company insolvencies registered in Q3 2021, 17% higher than the number of company insolvencies registered in the previous quarter and 43% higher than during the same quarter in the previous year.
Creditors’ voluntary liquidations (CVLs) were the most common company insolvency procedure (92% of cases), administrations (4% of cases), compulsory liquidations (3% of cases) and company voluntary arrangements (CVAs; 1% of cases).