Cash flow pressures drives over 60% rise in insolvencies

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Insolvency figures released today for October 2021 by the Government’s Insolvency Service show a 63% increase in corporate insolvencies compared to the same month last year (1,405 in September 2021 and 864 in October 2020). However they were 5% lower than the number registered two years previously (pre-pandemic; 1,480 in October 2019).

In October 2021 there were 1,248 Creditors’ Voluntary Liquidations (CVLs), which is slightly higher than pre-pandemic levels. The number of registered company insolvencies was similar to pre-pandemic levels, driven by this higher number of CVLs, although other types of company insolvencies, such as compulsory liquidations, remained lower.

Challenging winter ahead as corporate insolvencies forecast to rise

Leading restructuring and insolvency professional, Oliver Collinge from PKF GM in Leeds said:

“The surge in corporate insolvency numbers is not surprising. Many businesses have now started to repay BBLS and CBILS loans as well as deferred HMRC liabilities and the final Government support measures have now ended.”

“Cash flow pressures due to the well documented issues around higher inflation, staff shortages, increasing energy prices, supply chain challenges and the need to repay Covid incurred debt, is likely to lead to increased numbers of insolvencies over the next 12 months.”

“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 can be seen 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 action. The number of administrations also continues to creep up, which could offer insight into the health of UK companies. Administration has hopefully been selected as an alternative to liquidation as it has been possible to rescue the business.”

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.”

*October insolvencies:   Of the 1,405 registered company insolvencies in October 2021:

  • There were 1,248 CVLs, which is 85% higher than in October 2020 and 19% higher than in October 2019;
  • 46 were compulsory liquidations, which is 31% lower than October 2020 and 81% lower than October 2019;
  • 16 were CVAs, which is 24% lower than October 2020 and 56% lower than October 2019;
  • There were 95 administrations, which is 8% lower than October 2020 and 40% lower than October 2019; and
  • There were no receivership appointments