Having completed my last formal duty as Chair of R3 (Southern & Thames Valley) as long ago as December 2019, I was delighted in the absence of our current chair on a well-deserved break last week, to be asked to comment on the latest official statistics, and for my opinion in terms of what they indicate to me, going forward. Whilst the official release will appear elsewhere, I thought a short and informal summary for our website might also be of interest to our regular readers. In short, whilst the Insolvency Service’s publication of the corporate and individual insolvency statistics last week did show slight falls from June to July 2021, there is no getting away from the fact that July’s numbers have confirmed that the year-on-year formal insolvency trend is substantially upward. To an extent this was inevitable; it is how we respond to the challenges of the coming months, with the end of various government-led support and legislative restrictions, which really matters.
The statistics for England and Wales for July 2021, published on 17 August 2021, showed:
The month-on-month fall in formal corporate insolvencies was not unexpected. Formal insolvency numbers in past years have often fallen off somewhat during holiday periods and away from recurring triggers such as rent quarters and tax demands.
However, the fact that year-on-year corporate insolvency numbers have continued to rise now for three consecutive months, despite continued restrictions on creditor action such as winding up petitions and historically low numbers of administrations and CVAs, is potentially a much more significant indicator for the business community.
Within the overall increase, we have seen, tellingly, a comparatively huge 70.4% increase in Creditors’ Voluntary Liquidations compared to July 2020, which confirms that the figures for May and June were no blip and that CVLs are right back up to pre-pandemic levels. Voluntary liquidations tend to be instigated by company management rather than creditors, and this suggests that an increasing number of directors have decided to close their businesses after spending well over a year trying to survive the pandemic.
Whilst Government support has continued to provide a lifeline for many businesses which would otherwise potentially have failed in an economic climate like this, this July was still a very challenging month and business owners have known for some time now that this support will shortly be withdrawn.
The delay in lifting the remaining trading restrictions will have hit footfall and spending predictions, meaning that a huge number of businesses will now have spent more than 15 months under conditions that were wildly different to normal, and have incurred reopening costs from which they have yet to see much benefit.
With the opening up of the economy, consumer confidence reportedly at pre-pandemic levels, and spending levels higher than they were in 2019, the future does look more optimistic. Having said that, it will take longer for the worse-hit sectors to recover from the pandemic and some will not be so confident that they can recover at all once the Government support has gone.
SMEs are the backbone of the UK economy, but many have been badly affected by the pandemic, some irretrievably. Even with the economy growing again, patterns of trade have shifted and it will not be possible for every business to return to things precisely the way they were before the pandemic.
Some will adapt better than others, and some will need more help than others. Most will have to deal carefully with some level of legacy debt resulting from the pandemic, whether in the form of deferred rent, taxes, loans or all of these. The restructuring community is better placed than ever to help organisations with financial worries, but if directors leave it too late to ask for help, they will have fewer rescue or recovery options open to them. Directors must also be mindful of their statutory and fiduciary duties – for further information, please see our recent blog “3 practical legal tips for business management following COVID-19/ Brexit trade disruption“. Creditors and other stakeholders will rightly expect management to have taken appropriate advice at the right time so as to minimise the risks for all interested in the continued success of the business.
There is of course absolutely no shame at all in management seeking out support or advice. Many qualified insolvency practitioner accountants will offer a free initial consultation to business people who want to know more about their restructuring or insolvency options, so they can better understand the situation their business is in and explore the potential solutions for improving it. My team and I have worked with a range of IPs now for many years, and we would be delighted to facilitate an introduction to one of our insolvency practitioner contacts, should any of our readers wish for us to do so.
On the personal insolvency side, the month-on-month fall reflects a short term fall in Bankruptcies and Individual Voluntary Arrangements, although the number of Debt Relief Order increased over the same period.
However, personal insolvency levels increased year-on-year in July, driven mainly by an increase in the number of Individual Voluntary Arrangements, which shows something of the toll which the pandemic is taking on many people’s finances in England and Wales.
As the majority of the COVID-19 support measures soon come to an end, the introduction of the Breathing Space scheme in May 2021 has so far provided over 17,000 individuals in financial difficulty the chance to discuss their personal challenges with a debt advisor, free from creditor action. Whilst this scheme may be an additional support for those suffering financial hardships during and as a result of COVID-19, only time will tell as to the scheme’s overall impact on personal insolvency numbers in the long term. For further information about the Breathing Space regulations, please see our recent blog “New Pre-Pack Administration and Breathing Space Regulations: Another new dawn for insolvency law?“.
As we enter the middle of the summer, employment numbers and job vacancies have increased, and more people are returning to work as the furlough scheme begins to wind down. However, not everyone has benefited from Government support, and many people have had to borrow or use their savings to pay their bills.
We recognise that there are a huge number of people across the country who are worried about their finances right now, and the best thing they – or anyone who is worried about their personal or business finances can do – is to seek advice from a qualified and regulated source. We understand that finances are a really tough subject to discuss; but talking about financial concerns as they emerge or in their early stages means we all have many more potential solutions open to us and more time to decide which of these is best for our particular circumstances.
Often, to gain a full understanding of the pro’s and con’s of insolvency-based solutions requires input not only from an insolvency practitioner accountant to assess the overall financial situation and the viability of the formal solutions in practice, but also – especially where property, inheritance, trusteeships, directorships, shareholdings and/or personal service contracts are involved – from a suitably experienced solicitor.
Please do not hesitate to get in touch with Mike Pavitt, Chris Parsons, Lucy Andrews, or any other member of our Corporate Restructuring & Insolvency team should you wish to discuss any insolvency issue (whether or not raised in this blog) – we would be very pleased to help if we can.