Business insolvency statistics continue to defy gravity in the UK. Whilst this maybe viewed as positive news, the IVA increase shows that personal finances are beginning to take a hit.
Insolvency statistics recently released by the Government’s Insolvency Service show a 20% drop in corporate insolvencies compared to March last year, and a 37% drop compared to March 2019.
Conversely, Individual Voluntary Arrangements (IVAs), used by individuals in personal financial difficulty, were up 24% for the three months to the end of March 2021, compared to the three-month period ending March 2020.
Leading restructuring and insolvency professional, Peter Hart from PKF GM said, “While on the surface any fall in insolvencies looks like positive news, we think the figures mask the reality. Government support to protect jobs, businesses and the economy means that many underperforming businesses that might have entered insolvency for reasons unrelated to Covid, are still trading. As a result the level of company failures is now far lower than we would expect to see in a ‘normal’ economy.
With Government support tapering off, restrictions on enforcement action (such as winding-up petitions) being lifted, and an increased working capital requirement on re-opening, there will be multiple added pressures on businesses in the coming months; those that weren’t in robust financial health before Covid-19, but have been kept afloat by the Government’s support, could begin to feel the pinch quite quickly.
“It’s critical businesses act early and seek advice if they are struggling now, or think cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover.”
Personal insolvency levels
Hart added, “The uptick in IVAs is an indicator that personal finances are coming under increasing pressure after a year of lockdown and furlough. It’s hard to tell from the data, but it’s possible that company owners and directors that have been unable to access government support, as well as those that have lost their jobs, are entering formal arrangements such as an IVA to deal with mounting debts.
As the economy starts to reopen, many businesses are banking on pent-up consumer demand to make up for lockdown closures. But this increase in IVAs suggests that, whilst savings have undoubtedly grown for many during lockdown, a significant number of people have found their personal finances seriously weakened. It remains to be seen whether the anticipated consumer demand will match expectations.”
Hart added, “There are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy; don’t leave it too late. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.”
“For those businesses who are reopening over the next few weeks, now is a good time to begin negotiations with landlords and creditors to develop manageable repayment plans. Will revenues be high enough to support your cost base? Will cash flows be sufficient to deal with the additional debt burden (both formal and informal) that has accrued during lockdown? Perhaps a CVA is something which should be considered or, where you may need to take the difficult decision to make redundancies to survive, consider applying for government funding to meet the short term cash impact of this.”
March 2021 insolvency numbers – breakdown
The number of registered company insolvencies in March 2021 was 992, 20% lower than the number registered in the same month in the previous year (1,236 in March 2020).
This comprised 883 CVLs, 25 compulsory liquidations, 74 administrations and 10 CVAs. There were no receivership appointments.
There were, on average, 6,388 IVAs registered per month in the three-month period ending March 2021, 24% higher than for the three-month period ending March 2020 and 2% higher than the three-months ending March 2019.