What next for your business as we (hopefully) come out of Lockdown?
Introduction
On 26 June 2020 the Corporate Insolvency and Governance Act 2020 came into force introducing measures to relieve the burden on businesses during the Coronavirus pandemic. These measures included granting a new moratorium to give companies breathing space from their creditors, while they seek a rescue and introduced a new Companies Act procedure, known as a “restructuring plan” that allows companies to restructure unmanageable debt.
How have these measures impacted on Insolvency statistics, as the Coronavirus pandemic (hopefully), falls away?
The Insolvency Service regularly publishes statistics to provide more up to date insolvency information on the number of companies and individuals who are unable to pay debts and enter a formal insolvency procedure.
Interpretation of these statistics
The current provided data does provide some helpful comparisons with the previous year since the initial lockdown on 23 March 2020. This enables us to have a greater understanding as to the impact of the Coronavirus in the insolvency sector and just as importantly what we may expect to see happening in the following months and year.
Main Messages (England and Wales)
The number of registered company insolvencies in February 2021 were 49% lower than the same month in February 2020. This is the lowest recorded monthly number since January 2019.
Likewise, for individual insolvencies the numbers registered were a full 42% lower than in February 2020.
Overall, the numbers of company and individual insolvencies have remained low since the start of the first UK lockdown in March 2020. The main driver in this are the government measures implemented during the pandemic. These have included the temporary restriction on the use of statutory demands and certain winding up petitions (leading to company compulsory liquidations) and arguably of more importance the enhanced government financial support given to both companies and individuals.
Although the Insolvency Service does not record whether insolvencies are directly related to the Coronavirus pandemic the marked reduction in the amount of registered insolvencies in February 2021 is indicative that the governments “sticking plaster” approach has provided a medium term support to those individuals or businesses which may otherwise have been involved in insolvency applications.
Company Insolvencies
Whereas in the period from February 2019 to February 2020 company insolvencies in England and Wales were running at approximately 15,000.00 insolvencies per month, the most recent figures for February 2021 document company insolvencies running at approximately 750.00 per month.
Individual Insolvencies
For the same period in 2019 to February 2020, the average amount of individual bankruptcies was running at around 2,250.00 per month. With the advent of the first lockdown in March 2020 those figures have curved downwards to the current total of around 1400 bankruptcies per month.
What has bucked the trend is an actual increase in Individual Voluntary Arrangements, which have shown an 11% rise than for the same three month period ending in February 2020. This is a quasi-form of bankruptcy which protects debtors from their creditors under a court approved repayment arrangement agreed between the parties.
It is quite marked to note that immediately before the first lockdown in March 2020 registered IVA’s were running at approximately 4,000 per month but rocketed to 12,000.00 in May 2020. Although the figure has shifted down it is wholly apparent that many people were unable to cope with the financial strains placed upon them during the first lockdown. This is mirrored to a lesser extent in the second lockdown in the Autumn of 2020, when IVA’s increased again.
The Future (A crystal ball)
As the wider economy begins to re-open and the Chancellor’s Financial Support Measures are phased out it is highly likely that there will be a significant surge in activity in the insolvency sector.
Further extensions relating to the prohibition in bringing certain Winding Up Petitions and the use of Statutory Demands were passed in December 2020. Those restrictions were extended to 31 March 2021. The government has also temporarily removed (again) the threat of personal liability for wrongful trading from directors until 30 April 2021. Providing a director is acting in good faith in their dealings with the company the prospect of any personal liability for the company’s debts are reduced.
Those dates preventing the issue of certain insolvency measures could be extended and were debated in Parliament on 18 March 2021.
The current long stop position is that the Corporate Insolvency and Governance Act could be in place until April 2022. At that point it automatically “expires”. Despite the current uncertainty it appears possible that all of the general lockdown restrictions will be lifted after 21 June 2021 and consequently the protections currently in place as against insolvencies within the Act are quite likely to be withdrawn by that stage. We will all know within the next week or so.
Conclusions
At some point this year it is highly likely that the financial and legal protections currently warding off insolvencies will disappear. This will have significant ramification for many individuals and businesses.
Accordingly if you are a creditor to whom money is owed, please do not hesitate to contact Graeme Weir, via gjw@kingsfords.net or direct dial on 01233 648406 who will be happy to provide you with advice and assistance to recover monies owed through the Insolvency regimes.
Similarly, if you are an individual or a business that has financial difficulties and would like to negotiate settlements with your creditors please do not hesitate to contact Graeme as before. Graeme will be happy to advise as regards the enforceability of any contractual claims made against you and how those suggested liabilities can be defended or impact mitigated.
We additionally have direct access and work in conjunction with Insolvency Practitioners, should you need the protection of a CVA or IVA, Administration, Voluntary Liquidation, or other insolvency process. The one thing you must not do is procrastinate. The earlier you secure expert advice the better we can help alleviate any stresses you may be facing.