Company Insolvencies in January 2021 50% lower than January 2020, but is this good news?Posted: Feb 22, 2021

The Insolvency Service produce monthly figures for both corporate and personal insolvencies and to be honest I rarely comment on them. Partly because insolvencies are seasonal so increase in the first and third quarter of the year and decrease in the second and fourth quarter and partly because there is not much too talk about.

However, I feel that there is a clear trend and whilst on paper the trend appears to be good news it hides several issues which will hit the economy later in the year.

Let us start with the numbers.

·        The overall number of registered company insolvencies in January 2021 was 50% lower than January 2020.

·        December 2020 is the only month which has seen an increase in insolvencies since the start of the first lockdown.

·        Comparing January 2021 to January 2020, Compulsory liquidations were 85% lower, CVLs were 39% lower, CVAs 34% lower and Administrations were 57% lower.

So surely this is all good news?

Compulsory liquidations are situations where a creditor forces a company into liquidation following court action.

There are two points to note, first courts are effectively closed, and, in any event, you must prove to the court that the Company you are trying to wind up is insolvent, and that insolvency is not because of the pandemic. I think this is a difficult task. Second in normal times the largest petitioning creditor is HMRC for old tax debts. The assumption is that HMRC is currently not taking any action and we are aware that most HMRC staff have been redeployed to deal with other pandemic issues.

Therefore, the assumption must be that when things return to normal then compulsory liquidations will increase substantially.

When people find out that I am an insolvency practitioner the common assumption is that because of the pandemic I must be busy. As the statistics highlight, this is not the case. The reasons for this are obvious.

·        The Government has pumped in substantial funds whether that is via furlough schemes, rates relief, Bounce Back Loans, CBILS etc.

·        HMRC are not chasing in sums due as they normally would and indeed are offering payments plans which would not have been imagined 12 months ago.

·        Creditors in general are also being very patient in pursuing monies owed to them.

·        Landlords because of restrictions are unable to force rent payments from tenants or take action to force possession. Talking to solicitors who act for landlords they have confirmed to me that the moment these restrictions are relaxed many landlords will be acting.

·        Whilst the restrictions are in place it is easy for directors of businesses, which are in effect ‘bust’, not to take action in the hope that something will turn up.

Therefore, my main concern is that when the various restrictions are lifted, and government schemes are removed it is clear that the economy will be hit be a ‘wave of insolvencies’ which many of us have not seen before.

Clearly now is the time to ensure your credit control is up to date and ensure that you are not ‘washed away’ by my predicted wave of insolvencies.

If your business is going through a rough time and you think you could be facing insolvency, then talk to us. The first consultation is free and whether it results in comforting reassurance, a rescue plan, or an insolvency process, the sooner we start, the better your result will be. We hope it can provide you with a ‘roadmap’ to the future.