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Insolvency news update: Q3 2020 company insolvency rates released

Jeremy Oddie, corporate recovery and insolvency partner at North West accountancy firm Mitchell Charlesworth comments on the latest company insolvency statistics released by the government.
The latest company insolvency statistics released by the government, which cover July to September 2020, show corporate insolvencies in England and Wales fell to 2,672, down 9% on Q2 2020, and down 39% on Q3 2019.

The fall in corporate insolvencies was driven by a decrease in creditors’ voluntary liquidations (CVLs); other types of company insolvency increased in Q3 2020 compared with the previous quarter but were still much lower than the same period last year.

The most likely explanation for these falls in corporate insolvencies is that they are partly driven by government measures put in place in response to Covid-19. These include the reduced running of the courts and reduced HMRC enforcement activity since lockdown was applied at the end of March, the suspension of statutory demands and winding-up petitions from late April until the end of 2020 under the Corporate Insolvency and Governance Act, and enhanced government financial support available to companies and individuals.

These measures are contributing heavily to the level of company debt and it is currently estimated that corporate borrowing/debt is now five times greater than this time last year.

The latest statistics show that we are yet to see the full impact of the pandemic on businesses. Despite the government support available, businesses that would otherwise be healthy and profitable have found themselves struggling. When you factor in the unpredictability of the Covid-19 virus and the effect of further lockdowns, together with increasing unemployment, it is important that businesses are in control of their finances. Monitoring cashflow and creating budgets will make it easier to spot the warning signs if the business is struggling and to seek professional advice and support quickly.

Looking ahead, there are further changes to the insolvency landscape which will impact on businesses. On 1 December 2020 HMRC regains its status as a preferential creditor, at least partially, in any business insolvency. It is widely considered that the resurrection of HMRC, even as a partial preferential creditor, will have a significant impact on the ability of companies to borrow funds for working capital purposes, but where companies already have existing borrowings, it is almost universally perceived that those borrowings may be restricted, or in some cases withdrawn altogether.

This is likely to impact on the volume of new lending to healthy businesses and reduce the willingness of lenders to consider assisting struggling businesses. It will also undoubtedly make for more expensive borrowing which is fatal at a time when businesses are already facing so much uncertainty.

Bearing all of the above in mind, it would appear that once again we have a scenario wherein the government appears to be offering help to struggling companies on the one hand, but almost offsets that advantage with the other.

To discuss any corporate recovery or insolvency issues you may have, please contact Jeremy Oddie below: