Company insolvencies more than double as cash crunch starts to bite

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Insolvency figures released today for January 2022* by the Government’s Insolvency Service showed corporate insolvencies more than doubled compared to the same month last year (1560 in January 2022 and 758 in January 2021). They were similar to the number registered two years previously (pre-pandemic; 1508 in January 2020).

In January 2022 there were 1,358 Creditors’ Voluntary Liquidations (CVLs), more than double the number in January 2021, and 34% higher than in January 2020. Numbers for other types of company insolvencies, such as compulsory liquidations, remained lower than before the pandemic, although there were more than twice as many compulsory liquidations as in January 2021.

Challenging months ahead as pressure on businesses grows

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

“The large rise in corporate insolvency numbers is not surprising. 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. Additionally, the restriction on Landlords’ abilities to forfeit leases and take action to recover unpaid rent will be lifted on 25 March, and this will create further difficulties for some businesses.” 

“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 (CVLs), 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. There is also significant anecdotal evidence that many of these liquidations involve small companies which had taken out Bounce Back Loans and are now unable to repay them.” 

Between 26 June 2020 and 31 January 2022, in England & Wales, 15 moratoriums were obtained and 10 companies had a restructuring plan registered at Companies House. These two new procedures were created by the Corporate Insolvency and Governance Act 2020 and it is encouraging to see these new rescue procedures beginning to be used, albeit rather sporadically. 

  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.”

*January insolvencies:

  Of the 1,560 registered company insolvencies in January 2022:

  • There were 1,358 CVLs, which is 122% (2.2 times) higher than in January 2021 and 34% higher than in January 2020;
  • 118 were compulsory liquidations, which is 131% (2.3 times) higher than January 2021, but 60% lower than January 2020;
  • 13 were CVAs, which is 38% lower than January 2021 and 59% lower than January 2020;
  • There were 71 administrations, which is 3% lower than January 2021 and 58% lower than January 2020; and
  • There were no receivership appointments.