Member Article

Q3 2020 England and Wales insolvency statistics, R3 response

1. Corporate insolvencies fell to 2,672, down 9% on Q2 2020, and down 39% on Q3 2019.
2. The fall in corporate insolvencies was driven by a decrease in Creditors’ Voluntary Liquidations, though administrations slightly increased (by 2%) and Company Voluntary Arrangements (CVAs) increased by 34% compared to Q2 2020.
3. Personal insolvencies decreased to 19,783 in Q3 2020, down 40% on Q2 2020, and down 37% on Q3 2019.
4. The quarterly decrease in personal insolvencies was mainly driven by a sharp drop in Individual Voluntary Arrangements (IVAs), although a registration issue meant there was an abnormally high number of IVAs recorded in Q2 2020. Debt Relief Orders fell 7%, while bankruptcies rose by 10% in Q3 compared to Q2.

Eleanor Temple, chair of R3 in Yorkshire and a barrister at Kings Chambers in Leeds, responds to today’s publication of the Q3 2020 corporate and personal insolvency statistics for England and Wales:

Corporate insolvencies

“The corporate insolvency numbers in Q3 are lower than even the figures seen in Q2, after lockdown came into effect, and are another reminder that – whatever the impact of the pandemic on companies – it is yet to be fully seen in the insolvency statistics.

“The figures demonstrate that the support Government has provided to businesses, from providing a range of emergency loans to suspending winding-up orders and stopping commercial evictions, is helping keep many companies afloat during this period of economic turbulence.

“The third quarter of the financial year has been hard for the UK, its economy and its business community. The ONS found that 18% of UK businesses said they are at moderate to severe risk of insolvency, with 38% – two in five – companies in the hospitality sector saying the same thing. There is clearly trouble on the horizon.

“Five months of economic growth have failed to make up the ground lost by the unprecedented 19.5% economic contraction in April, with GDP remaining 9.2% lower than it was prior to the pandemic. We’ve also seen a number of big brands announce restructurings or enter insolvency processes over the last quarter, as the pandemic affects their customer base and their income.

“Retailers, hospitality, manufacturing and the service sectors have all been hit – and while some of these have shown signs of recovering, others are still not where they were before COVID. With the winter drawing in and a second national lockdown looking increasingly likely, even as some areas are put into local lockdowns, the chances of this recovery continuing are uncertain at best.

“Our members are telling us that they have returned to receiving requests for insolvency and restructuring advice and support, after a flurry of requests for advice about the Government’s support measures at the start of the pandemic.

“Looking ahead, the festive season is often the linchpin of the year for many companies, especially retail and hospitality businesses who build their business models around strong takings as people celebrate Christmas and other holidays. But this year, there is concern this model will not work as it has in the past, especially with limits on social gatherings, and curbs on travel to see family and friends. It remains to be seen how successful the Chancellor’s Winter Economic Plan will be at reducing economic pain – or if it will only delay it.

“Despite the Government’s efforts, there are likely to be a number of directors of businesses who are in a worrying position because of COVID – many of whom would have little cause for concern if the pandemic hadn’t happened, as their businesses would most likely have remained profitable.

“We would urge anyone who is in this position to seek advice from a qualified, reputable source as soon as they see signs their business is starting to struggle. The sooner you seek advice, the more options you have to potentially resolve your situation – and the more time you have to come to a considered decision about your future.

“Many R3 members offer a free consultation to people who are looking for help with their business finances and want to explore their options or understand how they might be able to resolve their situation.”

Personal insolvencies

“The fall in personal insolvencies over Q3 was driven by a decrease in IVAs and Debt Relief Orders compared to Q2, although bankruptcies increased compared to the previous quarter’s figures. Compared with the same quarter in 2019, all types of personal insolvency procedure saw a steep drop in numbers.

“This shows the Government’s support measures have continued to provide a safety net for many individuals. The furlough scheme has ensured a number of people remained in employment even if they were not working during that time, which has contributed to the reduction in insolvency levels. However, the recent extension of the furlough scheme offers a lower percentage of wages than its first iteration, which, although a lifeline for many, may not be enough for a lot of those affected to pay their bills.

“Despite this, we know people are worried about their future financial health – and that of the economy. Unemployment is at the highest level it’s been for three years – and expected to rise again in the short-term – and we have seen the biggest level of quarterly redundancies on record.

“Although consumer confidence increased quarter on quarter, it’s still much lower than it was this time last year – and before the pandemic. Consumer spending is much lower than at the same time last year, with outstanding credit card balances well below where they were 12 months ago, while mortgage approvals are at their highest level since 2007, following the stamp duty holiday.

“A lot of people in higher-income households have been stockpiling cash, with reduced opportunities to spend on travel or going out, while at the other end of the scale, people in low-income households are in many cases finding it very hard to get by, with reduced incomes leading to negative monthly budgets.

“This slowdown in non-mortgage spending is understandable as many people are just one change in circumstances away from being unable to keep on top of their debts – and it would be fair to say many are aware that the risk of a change in circumstances is increased in the current climate.

“It can’t be said enough – turning to a qualified and professional source of advice if your finances take a turn for the worse is always a good idea. The earlier you seek advice, the more options you have to try and resolve the issues you face.”

This was posted in Bdaily's Members' News section by Emma Kilmurray .