On 30 October 2020, the Insolvency Service published its quarterly insolvency statistics for July to September 2020 (Q3 20).
What do the stats say?
Following our previous briefing on the Q2 20 statistics, which can be found here, as predicted with the government’s extension of the temporary relief measures, the overall trend in corporate insolvencies continues downwards. Corporate insolvencies are down both in comparison to Q2 20 which showed a 9% drop, and Q3 19 which showed a 39% drop.
Comparing Q3 20 with Q3 19, the breakdown is as follows:
- Company voluntary liquidations (CVLs) fell by 39%
- Compulsory liquidations (i.e. court-ordered liquidations) fell by 58%
- Company voluntary arrangements (CVAs) fell by 29%, and
- Administration appointments fell by 18%
Interestingly, when comparing Q3 20 with Q2 20, although the number of company voluntary liquidations (CVLs) fell by 17%, the trend was upwards for:
- Compulsory liquidations (i.e. court-ordered liquidations) which increased by 42%, and
- Company voluntary arrangements (CVAs) which increased by 34%.
However, as CVLs dominate in terms of numbers (e.g. for Q3 20, CVLs numbered 1920 versus 292 compulsory liquidations and 63 CVAs), their reduction outstripped the upwards trend in compulsory liquidations and CVAs.
The significant increase in the number of compulsory liquidations was largely due to the courts coming back ‘online’, as during the lockdown from March to June 2020, their operations had been severely curtailed. Therefore the increase in winding up orders (i.e. compulsory liquidations) was largely because the courts were again actually hearing winding up petitions, which had been issued in Q1 20. Therefore, such petitions pre-dated, and therefore fell outside, the restrictions imposed on the issue of petitions from 27 April 2020, ushered in by the Corporate Insolvency and Governance Act.
What are behind the stats?
The stats – showing an overall reduction in the number of insolvencies – of course do not reflect the performance of companies and the economy as a whole, all of which are struggling. However, the downward trend in company failures again reflects the effect of the government’s relief measures. These temporary measures were, in the most part, extended beyond 30 June, to 30 September and therefore were very much in place throughout Q3 20, as was the Coronavirus Job Retention Scheme.
As covered in our article here – on the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 - the relevant period for some of the temporary reliefs was extended to 31 December 2020. With the extension of the Job Retention Scheme, now to 31 March 2021, together these measures will suppress the number of insolvencies for Q4 20, we predict.
Tim Carter, Co-Head of restructuring and insolvency at Stevens & Bolton LLP, comments that:
"Although the Welsh “fire-breaker” restrictions are due to end on Monday 9 November 2020, the national lockdown restrictions applying to England commence for four weeks from 5 November 2020. Combined, these undoubtedly undermine and apply huge financial pressures to all businesses, but especially those falling under the non-essential umbrella. Whilst the extension of the Job Retention Scheme might give partial relief (at least to companies in England), debts including deferral of tax and unpaid rent continue to mount. With the lockdown preventing non-essential businesses to trade, the precipice is now fast approaching. It remains to be seen if the temporary relief is yet further extended beyond the end of this year, in the same way as the government has with the Coronavirus Job Retention Scheme. We will have to wait and see if this, together with the Chancellor’s announcement to provide billions of pounds of other support for the economy, will save businesses and stem - what many are predicting to be - a dramatic rise in insolvencies in Q1 21."
Tim Carter