Corporate insolvencies have hit their highest quarterly total in 18 months, says insolvency and restructuring trade body R3 in the South West.
R3 said the increase is possibly due to some company directors opting to close their businesses before the situation deteriorates further.
The statistics for Q2 2021 from the Insolvency Service for England and Wales showed:
There were 3,116 seasonally adjusted corporate insolvencies in Q2 2021, an increase of 31.4% compared to Q1 2021’s figures of 2,371 and a rise of 4% compared to Q2 2020 (2,997).
There were 27,622 seasonally adjusted individual insolvencies in Q2 2021, a fall of 4.3% compared to Q1 2021’s figures of 28,895 and a fall of 13.9% compared to Q2 2020 (32,134).
R3 South West chair Philip Winterborne, a Partner at Temple Bright Solicitors in Bristol, said, “The increase in corporate insolvencies – to the highest quarterly total in 18 months – has been driven by a rise in Creditors’ Voluntary Liquidations (CVLs), which have increased to pre-pandemic levels.
“It’s hard to say what’s driving this increase in CVLs, but it could be that directors of a number of companies have decided they can no longer go on trading as a result of the pandemic and are opting to close down their businesses by using the CVL process, before the situation deteriorates further.”
Philip added, “What is clear is that the figures published today show the toll the challenges of the last three months – and the 12 before them – have taken on the business community.
“While many South West business owners were hoping the lifting of the lockdown would help them, they reopened amid low consumer confidence, a time when people were being encouraged to stay local, and when the economy was still a long way from recovering from the blow the start of the pandemic dealt it. The formal end of lockdown may have improved their situation, but it wasn’t the boost many businesses in the South West had hoped for.
“However, the Government’s support measures have remained in place over this period and are likely the reason why today’s increase isn’t as severe as it could have been.
“This support has been a lifeline for many businesses, but with the end of furlough in sight, South West directors now need to take the time to plan for how they’ll manage when this initiative ends.”
Philip said that looking ahead to the next quarter, the picture appears to be more positive.
“The economy is continuing to recover – the IMF has predicted it will grow by seven per cent this year and consumer spending is now above 2019 levels.
“With the removal of the final COVID restrictions and continuing vaccine rollout, there’s a chance many South West businesses may be able to return to near-normality again – although some sectors will take longer to get to this point.”
The decrease in personal insolvencies in Q2 2021 has been driven by a fall in numbers of Individual Voluntary Arrangements and Bankruptcies, although Debt Relief Order numbers have increased.
Philp said, “This could be a sign that the Breathing Space Scheme, introduced in May of this year, is delaying people from having to enter a personal insolvency process when they previously would have, by giving them time free from creditor action so they can consider their options and seek debt advice.
“With 11,747 people making use of the Breathing Space up until 30 June, there is clearly a significant demand for this scheme, but whether this prevents more people from entering a personal insolvency process or delays their entry into one is too early to tell.”
Philip added, “Despite the fall in personal insolvencies, the last three months have been challenging for consumers, as the delay in lifting the final stages of lockdown have affected people’s return to work – or in some cases, return to full-time work.
“Government support has helped many through this period, with the furlough scheme enabling millions to avoid unemployment, but it hasn’t been able to help everyone and has meant people have had their incomes reduced as a result of being furloughed.
“And, although the pandemic has meant some people have been able to save money, it has meant others, typically those on lower incomes, have had to borrow or use their savings. People in this situation are typically one unexpected issue, such as a reduction in hours at work or a sudden bill, away from insolvency.
“Anyone who is worried about their finances – personal or business – should seek advice from a qualified source as soon as possible.
“Government has introduced some innovative solutions to help companies in trouble, but management has to seek advice before working capital is exhausted for these to be considered.
“If you don’t know who to speak to, you can find a local source of insolvency and restructuring advice on R3’s website.”