Businesses facing challenging start to 2021 despite drop in insolvencies

Insolvency figures released on Friday by the government’s Insolvency Service show a 50% drop in insolvencies compared to January 2020.

In January 2021 there was a total of 752 registered company insolvencies, comprised of 613 CVLs, 45 compulsory liquidations, 73 administrations and 21 CVAs. There were no receivership appointments. The overall number of registered company insolvencies in January 2021 was 50% lower than in the same month in the previous year. December 2020 was the only month since the start of the first UK lockdown in which overall registered company insolvencies were higher than in the same month of the previous year.

Leading restructuring and insolvency professional, Peter Hart from PKF GM in London said: “An almost 50% drop in insolvencies compared to the same month last year is typical of the trend we have seen since the start of the Pandemic. The necessarily broad-brush approach to financial support taken by the chancellor has not just saved businesses whose operations are directly impacted by the pandemic, but has also kept afloat many businesses who would likely have failed regardless of Covid. As government life support is withdrawn, there looks certain to be a spike in companies in financial distress who have only survived because of funding provided directly by or guaranteed by the government”.

“The level of insolvencies will be an important barometer of the health of the economy over the next year. Ironically, a rise in insolvencies would be a positive signal that the economy is returning to normal as government bailouts start to recede.”

Peter Hart added: “It’s undoubtedly tough out there for many businesses. However, there is a wide variety of options and support available to businesses under financial pressure; don’t leave it too late to explore them. 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.”