Monthly company insolvencies reach higher than pre-pandemic levels

Following the publication today of the latest monthly insolvency statistics by The Insolvency Service, Claire Burden, Partner in the Advisory Consulting team at Tilney Smith & Williamson, the wealth management and professional services group, comments:

The monthly insolvency statistics published by The Insolvency Service for the month of November 2021 show that for the first time since the start of the coronavirus pandemic the monthly number of registered company insolvencies in England and Wales was higher than pre-pandemic levels, driven by the higher number of creditors’ voluntary liquidations (CVLs). Registered company insolvencies in November 2021 were 88% higher than the number registered in the same month in the previous year and 11% higher than the number registered two years previously.

Aside from CVLs, other types of company liquidations in England and Wales remained lower than before the pandemic, which is likely to have been due to extensive government support that protected against redundancies, landlord action and cash flow problems. But times are changing – we are entering a new phase of ‘living with covid’, where it isn’t clear what, if any, support government will provide to businesses currently facing a drop in customer demand following a rise in Omicron cases.

We hear much of hospitality and entertainment businesses facing mass cancellations as customers choose to stay at home over the busiest time of year, when cash is generated to trade through the quieter spring months. Although the discounted VAT rate and business rates relief continue until March 2022, we expect increased insolvencies in the sector if no additional government support is forthcoming.

But issues are not just restricted to hospitality and entertainment. Companies are now having to pay back their government-backed covid loans and HMRC arrears whilst also dealing with issues from this wave of Omicron. Organisations that rely heavily on people are also struggling to operate as normal given high levels of staff absences and self-isolation. Office districts are once again quiet, with work from home guidance impacting sandwich shops and other office support businesses. In addition, outside of covid, businesses are still struggling with inflationary cost hikes, interest rate increases and international supply chain issues.

We would recommend that businesses assume no government support is on the horizon (certainly not at levels seen previously) and work to get ahead of issues as quickly as possible. Businesses facing a bleak start to the new year should be contingency planning, prioritising cash flow management and speaking to stakeholders to manage expectations and raise additional funding where required. In addition, Directors should be mindful of their responsibilities around insolvency and wrongful trading, and seek advice if concerned.