Company insolvencies increase as tough year ahead forecast
Insolvency figures released for December 2021* by the government’s Insolvency Service showed a 20% increase in corporate insolvencies compared to the same month last year (1486 in December 2021 and 1237 in December 2020). They were also 33% higher than the number registered two years previously (pre-pandemic; 1120 in December 2019).
In December 2021 there were 1,365 Creditors’ Voluntary Liquidations (CVLs), which is 37% higher than in December 2020, and 73% higher than in December 2019. Other types of company insolvencies, such as compulsory liquidations, remained lower than before the pandemic.
Challenging 2022 ahead as corporate insolvencies forecast to rise
Leading restructuring and insolvency professional, Oliver Collinge from PKF GM said: “The continuing increase in corporate insolvency numbers is not surprising. December was a tough end to the year for many firms with the increasing numbers of cases due to the Omnicron variant and ‘Plan B’ hitting footfall and sales in the normally lucrative pre-Christmas period.
“Many distressed businesses have managed to keep afloat by making use of the high level of government support available. However, as businesses have now started to repay BBLS and CBILS loans as well as deferred HMRC liabilities, pressure on cash is growing and we may continue to see the overall number of business failures increase. Higher inflation, staff shortages, increasing energy prices, supply chain challenges and the need to repay Covid incurred debt, are all likely to lead to increased numbers of insolvencies during 2022.”
“These challenges will put multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid, so 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.”
“The biggest increase is in Creditors’ Voluntary Liquidations, where directors have chosen to place their business into an insolvency process. In part this may be because creditors can now take enforcement action, forcing directors to take pre-emptive action.
A message to company directors
Oliver Collinge 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 that are struggling, 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 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.”
Of the 1,486 registered company insolvencies in December 2021:
There were 1,365 CVLs, which is 37% higher than in December 2020 and 73% higher than in December 2019;
42 were compulsory liquidations, which is 2% lower than December 2020, and 75% lower than December 2019;
Seven were CVAs, which is 84% lower than December 2020 and 67% lower than December 2019;
There were 72 administrations, which is 52% lower than December 2020, and 49% lower than December 2019; and
There were no receivership appointments.