Insolvency statistics for the April to June 2020 quarter: the calm before the storm?

Insolvency statistics for the April to June 2020 quarter: the calm before the storm?

A quick guide to the new VAT domestic reverse charge for building and construction services taking effect from 1 October 2019

On 30 July, the Insolvency Service published its quarterly insolvency statistics for April to June 2020 (Q2 20).

Some may be surprised to learn that, during these uncertain times, company insolvencies in England and Wales have declined by one-third compared to the same quarter ending June 2019 (Q2 19).

By way of a breakdown, and by comparing Q2 20 with Q2 19, the numbers of:

  • Company voluntary liquidations (CVLs) fell by 24%
  • Compulsory liquidations (i.e. court-ordered liquidations) fell by 76%
  • Company voluntary arrangements (CVAs) fell by 49%, and
  • Administration appointments fell by 10%

However, this is less surprising when taken in the context of the package of temporary reliefs provided to businesses, including:

  • Restrictions on landlords taking action against tenants for unpaid rents
  • The Coronavirus Job Retention Scheme (also known as the furlough scheme)
  • HMRC deferrals for tax liabilities, and
  • The retrospective nature of the Corporate Insolvency and Governance Act 2020 with enforced restrictions on bringing winding up actions and relaxation of the wrongful trading regime

These links will take you to our previous articles on the changes originally proposed under the Corporate Insolvency and Governance Bill, post-implementation aspects for landlords and tenants, and dealing with insolvent customers and CLBILS loans.

These reliefs have provided temporary "breathing space" for businesses, which is likely to be a significant factor in the reduction in corporate insolvencies for Q2 20.

What remains to be seen, of course, is whether there will be a spike in company insolvency figures once the temporary reliefs come to an end. For example, unpaid rent and deferred tax liabilities continue to accrue. If companies are suffering from reduced trading patterns, it follows that they are going to struggle to meet these deferred payments as and when they fall due.

Tim Carter, Co-Head of restructuring & insolvency at Stevens & Bolton, comments:

"Whilst Q2’s figures - confirming also a 25% fall in company insolvencies when compared to the first quarter of this year – on the surface appear optimistic, they do not reflect the economic reality facing the UK.

The government’s emergency measures in reaction to COVID-19, including a deferral of tax payments, restrictions on statutory demands and winding up petitions, and enhanced government financial support in the shape of the employee furlough scheme and COVID-19 related loans, have largely stemmed the number of insolvencies over the past months. Although most sectors have been hit hard by the pandemic, for companies in the hospitality and non-essential retail sectors that were already having a tough time pre-COVID-19, the end of these sanctions will likely mark the death-knell.

It will be interesting to see if the next quarterly insolvency statistics (due to be released on 30 October) start to reflect an increase in insolvencies. Of course, if the temporary measures are extended past this autumn, we may see the continued suppression of insolvency appointments in Q3."

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