The UK’s latest quarterly insolvency statistics have recently been published along with a summary of 2020 figures and the headline from this data is that the total number of registered underlying company insolvencies last year decreased to the lowest annual level since 1989.
That is quite the headline and a cursory conclusion would be that there was some positive news to come out of an economically, socially, and politically challenging year.
However, this sharp decline in corporate failures is largely down to the financial support that was rightly provided by the government to many cash-strapped businesses last year as a result of Covid-19.
Inevitably, there will have been many businesses that would have entered an insolvency procedure last year, regardless of there being a global pandemic, but instead were afforded the life raft of business interruption loan schemes and the government’s job retention scheme.
HMRC also significantly reduced its enforcement activity last year and courts were largely closed or experienced temporary moratorium which will have meant insolvency rates were always going to be minimal.
Government support will start to decrease and come to a close in the coming months and the expectation from many insolvency practitioners will be a sharp rise in both corporate and personal insolvency rates from late Q3 / early Q4.
Below is a breakdown of the core statistics from last year.
For Q4 2020, there were 3,071 company insolvencies, of which CVLs accounted for 82%, followed by Administrations with 11%.
There were 80 CVAs, which is the highest amount since Q4 2019 (77). As a point of interest, there were no Receiverships in Q4 in comparison to the 1 in each of the previous 3 quarters.
Overall, in 2020, company insolvencies saw a significant decline in comparison to 2019, falling by 27%.
Company insolvencies dropped to their lowest level since 1989, with all types of insolvency procedures seeing a marked decrease from the previous year.
CVLs dropped to their lowest levels since 2007
CVAs fell to their lowest levels since 1993
Compulsory Liquidations were at their lowest numbers since 1973
Administrations were down 19% from 2019.
As has been the case for the last decade, CVLs made up the majority of company insolvencies, accounting for three quarters of all cases in 2020.
Typically, company liquidation rates have seen an increase in response to a change in the economic climate. Liquidation rates increased in the early 90s following a period of recession, with the last spike in liquidations being in 2009 following the global financial crisis. However, despite the UK entering a recession, they have decreased for the aforementioned reasons.
There were 31,059 individual insolvencies in Q4 2020, an increase of 57% on the previous quarter.
This was largely driven by an increase in the number of registered individual voluntary arrangements (IVAs), with 11,297 more IVAs in Q4 2020 compared to Q3 2020.
There was also a 9% increase in the number of Bankruptcies in Q4 2020. However, Bankruptcies since Q2 2020 continued to be the lowest seen since 1991. There was also a decrease in the number of Debt Relief Orders, making this the lowest quarterly number since they were introduced in 2009.
Overall, 2020 saw a 9% reduction in individual insolvencies compared with 2019. The explanations provided in the previous section go a long way to explaining the drop in personal insolvencies. The Government continue to do their best to avoid disaster.
In Q2 2020, the bankruptcies by those self-employed was at its lowest since 2003, and then for Q3 2020, this became the second lowest on record. These stats, once again matching the start of the pandemic and the point at which government support kicked in.
Most industries saw fewer company insolvencies in 2020 than in 2019 but the three sectors with the highest number in the 12 months to Q4 2020 were: Construction (16%), Accommodation & Food (14%) and finally, Wholesale & Retail trade (13%).
In 2019, construction had over 1000 more insolvencies than 2020 (a reduction of 37%). However, Construction holds its crown as the industry with the highest insolvencies.
It’s likely there will be a dramatic increase in personal and corporate insolvencies come the second half of 2021 as the support reduces, as a number of insolvencies would have been inevitable without this support.
It will be interesting to see what period of time the 2021 numbers mirror. As of now, it’s anyone’s guess.
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