Company insolvencies rapidly increasing

Government figures reveal a 40% increase in the number of registered companies that entered insolvency procedures during the past year.

Newly-released data shows the number of companies entering statutory insolvency procedures has risen 15% compared to pre-pandemic levels in June 2019. Furthermore, the number of companies that were placed into a creditors’ voluntary liquidation (CVL) procedure has increased by:

• 30% since June 2021
• 44% since June 2019

According to the latest statistics, there was a 37% reduction in bankruptcy procedures during the 12 months to June 2022, and a:

• 36% increase in compulsory liquidations
• 23% increase in administration procedures

Company insolvency increase

It is concerning that compulsory liquidations continued to increase despite the Government’s temporary restrictions on winding-up petitions during the pandemic.

Although creditors could still able obtain winding-up petitions, for almost two years they were prohibited from presenting them to debtors:

• Immediately
• Who owed less than £10,000

These draconian restrictions were enforced largely to protect small-to-medium enterprises in the retail and hospitality sectors following the Covid-19 lockdowns. However, the legislation proved to be detrimental for the many companies that struggled to collect debts during this period.

Unnerving indication

Likewise, the rise in creditors’ voluntary liquidation is an unnerving indication of the potential for serious economic upheaval in the coming months. In a creditors’ voluntary liquidation (CVL), the directors nominate a licenced insolvency practitioner to liquidate the assets of an insolvent company.

The escalating use of this particular insolvency procedure is another sure sign that all is not well at UK PLC. Clearly, an increasing number of directors are seeking to cut their losses and liquidate their company’s assets.

These figures suggest company insolvencies and liquidations will continue to increase as the consequences of Brexit and the Covid-19 lockdowns become more apparent.