On 29 January 2020, the Insolvency Service published its quarterly insolvency statistics for October to December 2020 (Q3 2020).
Company insolvencies increased by 17% in Q4 2020 when compared with Q3 2020. For more information on the Q3 2020 statistics, read our previous briefing note here.
Comparing Q3 2020 with Q4 2020, the breakdown is as follows:
- Compulsory liquidations (i.e. court-ordered liquidations) fell by 55%
- Administration appointments fell by 12%
- Company voluntary liquidations (CVLs) increased by 34% (but are 16% lower than Q4 2019)
- Company voluntary arrangements (CVAs) increased by 27% (4% higher than Q4 2019)
Despite this quarterly increase, the general picture for 2020 still shows a substantially reduced number of company insolvencies in England and Wales – a reduction of 27% - when compared with 2019, broken down as follows:
- Compulsory liquidations (i.e. court-ordered liquidations) fell by 55%
- Company voluntary liquidations (CVLs) fell by 22%
- Administration appointments fell by 16%
- Company voluntary arrangements (CVAs) fell by 26%
In fact the Insolvency Service has reported that company insolvencies are at the lowest annual level since 1989 and that compulsory liquidations are at their lowest level since 1973.
David Steinberg, Co-Head of restructuring and insolvency at Stevens & Bolton, comments that:
“Most changes in company insolvency rates are influenced by the economy such that when there is an economic downturn, such as in 2008/2009, insolvency rates dramatically increase. However the most recent recession coinciding with the coronavirus pandemic has bucked this trend despite this recession being forecasted by the Bank of England to be the worst recession in 300 years.
As discussed in our last briefing, government measures - including a deferral of tax payments, restrictions on statutory demands and winding up petitions, the employee furlough scheme and pandemic-related government-backed loans – will be behind these unusually low insolvency figures. However, at some point in the near future these support measures will be withdrawn by the government. Only at that point will we begin see the true impact of this pandemic upon cash-strapped businesses. Some commentators predict a ‘tsunami’ (again!) of corporate insolvencies, whilst others plump for a steady trickle. Whoever is right, it is clear that opportunistic investors with an appetite for distressed assets have built up large cash war-chests and are poised to swoop, once the government’s life-support is switched off and businesses begin to fail."
David Steinberg