The latest statistics from The Insolvency Service show that there was a fall in the number of business insolvencies across England and Wales in May, when compared with last year. Figures released by the Treasury also show the extent of financial help already paid out through the coronavirus support schemes.
The insolvency figures for May 2020, the second full month of the government’s lockdown restrictions, show that there were 994 company insolvencies. This included 790 creditors’ voluntary liquidations (CVLs), 110 administrations, 32 compulsory liquidations and 12 company voluntary arrangements (CVAs). There were no receiverships reported for May.
Ban on winding-up petitions takes effect
Compared with the figures from May 2019, this is a decrease of 30% in the number of company insolvencies. The main driver for this drop was the fall in the number of compulsory liquidations – which decreased by 88% compared with the same month last year.
The reason for this dramatic fall was the government’s ban on the use of statutory demands and winding up petitions, which came into force on 27th April. Compulsory liquidations require a creditor, shareholder or director to obtain a winding-up order from the court. This ban will be in place until at least 30th June 2020.
Other types of insolvencies also fell during the last month. This includes a 17% fall in CVLs and a 61% decrease in CVAs, when compared with the figures for May 2019.
Administrations did see a rise of 16% compared with the same period last year. However, rather than indicating a particularly high number of administrations in May, this was actually indicative of a relatively low level in May 2019.
The vice president of R3, the insolvency and restructuring trade body, Christina Fitzgerald said: “Indicators over recent months suggest an increase in insolvency numbers is coming, but this has not yet materialised. We are potentially in the calm before the storm, as indicated by the unprecedented 20.4 percent fall in GDP in April, published today (June 12).
“For the first couple of months of lockdown, the insolvencies were mainly companies already in financial trouble. It may not be long before this changes, however, and insolvencies of companies which would be viable under normal circumstances are initiated due to the lockdown and effects of the pandemic.”
Hospitality industry impacted by coronavirus lockdown
The leisure and hospitality industry has been one of the hardest hit by the government lockdown restrictions. This sector was already in a precarious position prior to the pandemic and the forced closure has caused huge problems for many businesses.
There are already some leading brands that have announced permanent closures as a result of the lockdown. This includes The Restaurant Group (owners of Frankie and Benny’s), Monsoon Accessorize and Debenhams.
Business loan figures increase
The latest figures released by the Treasury highlight that businesses have been quick to take up the emergency loans provided by the government. These facilities have been offered to enable businesses to see out the financial crisis and to try and prevent large scale job losses.
Lenders have so far approved £34.9bn worth of business support loans to over 830,000 companies. The majority of companies have applied for the Bounce Back Loan Scheme, with £23.8bn already paid out by lenders.
A further £9.6bn has been paid out to 48,000 businesses through the Coronavirus Business Interruption Loan Scheme.
Christina Fitzgerald commented: “The corporate insolvency figures show the Government COVID-19 support measures appear to be helping many businesses that may otherwise have struggled during this period of economic disruption. This, in part, explains the drop in the number of businesses entering an insolvency process. There are also operational and logistical factors – such as the partial closing of the courts at the end of March – which also continue to play a role.
“While these statistics provide another snapshot of how the pandemic is affecting businesses and consumers, they still do not provide a full account of the impact it is having on levels of insolvencies.
“It’s clear that we’re set for a period of economic turbulence. In addition to today’s shocking GDP figures, research also shows consumer spending and consumer confidence – which are indications of both the health of the nation’s personal finances and of how businesses will fare going forward – fell significantly between March and April, and many businesses will face a rocky road until this improves. The rent quarter day, which occurs in the fourth week of June, will also put extra pressure on many businesses.
More information:
Early signs of recovery in the SME sector
Business Impact of Coronavirus
10 ways to help your business financially during the coronavirus pandemic