Company liquidations and personal insolvencies keep rising

Nicola Clark, restructuring and insolvency (R&I) partner at Azets, the UK’s largest regional accounting firm and specialist business advisor to SMEs, comments on the latest quarterly insolvency statistics for January to March 2022 in England and Wales:

Company insolvencies

The latest quarterly insolvency statistics show a slight increase of 6% in the number of company insolvencies, when compared with the final quarter of 2021 (seasonally adjusted). More notable, however, is that the number of business failures is more than double (112% higher) the figure which was reported in the first quarter of 2021, likely to have been driven, at least in part, by the withdrawal of Government support and other measures which were put in place to support businesses and individuals through the pandemic at that time. 

The number of administration and CVA appointments remains stagnant. In fact, both are marginally lower than was reported in the previous quarter. The biggest increase can be seen in Creditors’ Voluntary Liquidations, where Directors have sought to place their business into an insolvency process. It is likely that in many cases the return to a risk of creditor enforcement action has led directors to take action now, where previously protection from creditor enforcement action was available by way of the restrictions on the use of statutory demands and certain winding-up petitions. Those restrictions have now been removed.

The continuing trend upwards in the number of liquidation appointments is concerning, though unsurprising, and reflects the many significant challenges facing SMEs yet to see a return to pre-pandemic levels of activity and revenues. Many businesses are having to navigate a myriad of challenges including rising inflationary costs, particularly utility charges, supply chain disruption, increasing labour and material costs and chronic staff shortages. These challenges come at a time when covid support loan repayment holidays have ended and creditors now have the option of presenting a winding-up petition.

Of particular concern is the contrast between the sharp increase in the number of liquidations and the continuing low number of administration and company voluntary arrangements. The purpose of a CVA and administration is to rescue a business as a going concern, thereby preserving employment and usually producing a return to creditors. In many cases, it is likely that businesses and jobs lost to liquidation may have been able to be saved with earlier intervention. It is imperative that Directors concerned about the financial strength and viability of their business take early professional advice from a restructuring and insolvency professional to ensure that all options remain available.

Individual insolvencies

The number of individual voluntary arrangements – debtors seeking formal agreement from their creditors to repay at least part of the debt – has increased on the same quarter a year ago by approximately 14%. This is concerning in that individuals are clearly continuing to see the pressure on personal finances and with the increases in NI biting this month we would expect this to continue. What is positive is that debtors are clearly taking proactive steps to try and alleviate the burden of their own personal debt.

Formal bankruptcies are continuing to decrease quarter on quarter and are down 40% on the same quarter a year ago however the moratorium imposed by Covid has not yet filtered through to the courts and the delays from breathing space applications will also have provided a further delay in formal bankruptcy orders. These numbers can expect to increase. There were 17,336 applications for breathing spaces in the quarter and interestingly 284 were on mental health grounds which is a substantial increase on the same quarter a year ago which was 100. This is not surprising with the very worrying trend in high inflation and increases in interest rates creating the perfect individual insolvency storm.

Total number of individual insolvencies for 2021 return to mirror the 2012 numbers although the shift away from bankruptcy to individual voluntary arrangements is marked with bankruptcies a quarter of the level they were in 2012 and individual voluntary arrangements doubling. What is clear therefore is that no matter what process is available the number of individuals seeking relief from the continuing burden of debt has not really changed over the last 10 years.