New Figures For June 2021 Has Revealed A 63% Increase In Corporate Insolvencies, – Compared To June Last Year (2020)
The Government’s Insolvency Service has released new figures for June 2021, which revealed a 63% increase in corporate insolvencies (1,207), – compared to the same month last year (741 in June 2020).
Interestingly enough, the numbers also show that insolvencies are 18% lower than the number registered two years prior (pre-pandemic: 1,466 in June 2019). A leading restructuring and insolvency professional, Oliver Collinge (from PKF GM) commented:
“This trend of rising corporate insolvency numbers has long been predicted, and we expect it to continue as government support schemes reduce, and as the temporary restrictions on the use of certain creditor enforcement actions are lifted. It is inevitable that insolvency numbers will return at least to pre-pandemic levels relatively soon, and possibly even higher for a period of time.”
“One of these temporary restrictions (namely the moratorium on issuing winding up petitions), is due to end on the 30th September 2021 which, if not pushed back again, – could trigger a sharp rise in corporate insolvencies in the coming months, as creditors will be able to enforce their rights again,” he added.
“The end of the furlough scheme is also due at the end of September 2021, which will put further cash flow pressure on some companies in the region, and it will likely increase insolvencies in the last quarter of 2021, and at the start of 2022,” said Oliver.
Most remaining lock-down measures have been released now, and a number of businesses who were closed, or were operating at a reduced capacity have now reopened. Many businesses are expected to encounter cash flow pressure, particularly if their revenues do not quickly return to pre-pandemic levels, as hoped.
And with an increased working capital requirement on re-opening, there will be multiple added pressures placed onto businesses in the coming months, – particularly those that weren’t in robust financial health prior to the Covid-19 outbreak: “the added pressure of self isolation, and the resulting risk of businesses having to temporarily close due to staff isolating will also cause a considerable burden at a time when many are struggling to break even,” explained Oliver.
All in all, Oliver’s advice is simple: it is critical that businesses act early and seek advice if they are struggling now, or if they think that cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover: “there are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy,” advised Oliver.
“For those businesses who have just reopened, now may be the time to begin negotiations with landlords and creditors to develop manageable repayment plans. Will revenues be high enough to support your cost base? Will your cash flows be sufficient enough 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, or consider applying for government funding to meet the short term cash impacts of this.”
Of the 1,207 registered company insolvencies in June 2021, there were 1,116 CVLs (director-initiated liquidation process), which was double the amount in June 2020 and 11% higher than in June 2019. 38 were compulsory liquidations, which was 46% lower than June 2020, and 86% lower than June 2019.