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Corporate insolvencies fall again, as lenders provide £35bn of emergency loans

New monthly corporate insolvency statistics out today (June 12) show a decrease in May, compared to a year ago, but this week Treasury figures also revealed businesses have borrowed just under £35bn in emergency loans.

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The Insolvency Service, which is now publishing the statistics monthly, said there were 944 company insolvencies in England and Wales in May – a drop of 30 percent on the same month last year.

 

The May total comprised 790 creditors’ voluntary liquidations (CVLs), 32 compulsory liquidations, 110 administrations and 12 company voluntary arrangements (CVAs). There were no receiverships.

 

The government agency said the annual decrease was driven by a drop in compulsory liquidations in May 2020, which fell by 88 percent compared to May 2019.

 

Other more obvious factors behind the fall are ongoing insolvency procedures being halted because of the pandemic and that, since the lockdown took effect on March 23, HM Courts & Tribunals Service has reduced operational running of the courts. The government also announced in late April that it would prohibit the use of statutory demands and certain winding-up petitions until June 30.

 

There was also a 17 percent decrease in CVLs in May 2020 compared to a year ago, and a 61 percent fall in CVAs. Administrations rose by 16 percent, but the Insolvency Service said this was due to lower administrations in May 2019, rather than higher numbers last month.

 

While the statistics provide a snapshot of how the pandemic is affecting businesses, insolvency trade body R3 said they still don’t provide a full account of the impact on insolvencies.

 

R3 vice president Christina Fitzgerald said: "Indicators over recent months suggest an increase in insolvency numbers is coming, but this has not yet materialised. We are potentially in the calm before the storm, as indicated by the unprecedented 20.4 percent fall in GDP in April, published today (June 12).

 

“For the first couple of months of lockdown, the insolvencies were mainly companies already in financial trouble. It may not be long before this changes, however, and insolvencies of companies which would be viable under normal circumstances are initiated due to the lockdown and effects of the pandemic."

 

Jo Windsor, insolvency partner at law firm Linklaters, said: "The downward trend is, unfortunately, very unlikely to continue, particularly when businesses which are already facing real liquidity issues have to start paying the wages of furloughed staff and dealing with liabilities that have accrued since lockdown.

 

"Management teams will have to make tough decisions about the viability of their business in the post-lockdown world."

 

The Insolvency Service data came just two days after Treasury figures revealed that across all types of business support loans backed by government guarantees, lenders have approved £34.9bn to more than 830,000 firms.

 

Most companies have applied for the Bounce Back Loan Scheme – aimed at micro businesses – has which has seen £23.8bn provided by lenders.

 

Bounceback loan approvals and applications

Source: HM Treasury

 

Another 48,000 businesses have been supported through the Coronavirus Business Interruption Loan Scheme – to the value of £9.6bn.

 

CBILS - approvals and applications

 

Source: HM Treasury

 

A total 244 of larger companies have received finance via the support scheme for bigger companies, with £1.6bn approved.

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