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Insolvency statistics - What does this say about the future?

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On 15 May 2020, the Insolvency Service released the monthly insolvency statistics for April 2020. The figures show that insolvencies over April returned to pre-lockdown levels. However, higher numbers are expected once the government restrictions are lifted and the support mechanisms, such as the furlough scheme, comes to an end.

The statistics

In April 2020, there were:

Corporate Insolvencies

Individual Insolvencies

In total, there were 1,196 corporate insolvencies and 10,397 individual insolvencies in April 2020. This is largely the same as pre-lockdown March levels but when compared to April 2019, this results in a 17% decrease in corporate insolvencies and an 8% increase in individual insolvencies.

What do these statistics say?

The figures appear to show that the measures put in place to assist companies through the pandemic, such as the implementation of the Coronavirus Business Interruption Loan Scheme, have so far been successful in keeping corporate insolvencies to a manageable level. Christina Fitzgerald, Vice President of R3 Insolvency and Restructuring, comments that most corporate insolvency procedures initiated have been by companies already in financial distress, for whom the freezing of normal operations was the final blow.

However, as to what these figures indicate for the future remains to be seen. The Insolvency Service concedes that they do not record whether an insolvency is related to the coronavirus pandemic. Consequently, the financial impact the coronavirus has had on companies and individuals is largely unknown. We expect that as the pandemic continues, there will be a steady rise in insolvencies, with the potential for a large spike (the so-called ‘insolvency tsunami’) when government support is withdrawn or phased out.

There is hope to be found for companies within the Corporate Insolvency and Governance Bill (the “CIGB”). The measures proposed in the CIGB are aimed at business rescue and may help more companies trade their way out of financial difficulty. For example, if a company requires more time to jump-start their business once they reopen, they may benefit from the new statutory moratorium, which will restrain creditor action whilst the company concerned gains momentum.

Individuals and companies who are facing financial distress are encouraged to seek professional advice at the earliest opportunity, so appropriate rescue plans can be put in place before the government restrictions on creditor action are lifted.

Our Business Restructuring and Insolvency Team are experts in this area. If you have any queries about any of the issues raised above, please do not hesitate to contact us.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.