The number of corporate insolvencies remained low throughout June, and fell by half compared to June last year, but experts believe the figures are not reflecting the severe situation many UK firms are facing.
Monthly figures were released on July 14 by The Insolvency Service, which is now publishing the stats monthly, rather than quarterly, to help industries track the effects of the recession.
Further figures were published by The Insolvency Service on July 30, which show comparisons between quarters. These numbers show company insolvencies decreased by 23% in Q2 this year compared to the previous three months, (falling to 2,974).
Commenting on the quarterly trends, Colin Haig, president of the insolvency and restructuring trade body R3, said: “Despite the fact we’ve had the lowest quarter for corporate insolvencies since 2010, now is not the time to be lulled into a false sense of security. We have not seen the full impact of COVID-19 on businesses because of the lifeline the government’s support has provided.”
He added: “The next quarterly statistics will cover the immediate period after quarter day in June and the date for when deferred HMRC debts are due. These two deadlines will have posed a challenge to businesses which have not been trading as they are not likely to have the cash at hand to cover this. They will also have faced additional staff costs and costs incurred in getting premises Covid safe.”
The other monthly figures from the Insolvency Service show that in June, there were 732 company insolvencies in England and Wales, 22% lower than May’s total of 944. This comprised 557 creditors’ voluntary liquidations (CVLs), 61 compulsory liquidations, 100 administrations and 14 company voluntary arrangements (CVAs).
The figures came out just as the Treasury updated the coronavirus business support loan statistics. Over the past month, aince July 5, the number of approvals for the Coronavirus Business Interruption Loan Scheme (CBILS) has increased by 5,000, raising the total value of loans under CBILS to £13.08bn from £11.49bn.
Approved Bounce Back Loans (BBLS) increased by 122,000 in the past month to 1,135,575. This increased the value of loans approved by almost £3bn, to £34.34bn.
There have been 88 new approved loans under the Coronavirus Large Business Interruption Loan Scheme (CLBILS). This brings the total of approved applications to 482, and the value to £3.27bn, increasing from £2.58bn.
Combined across the schemes, there are now 1.2 million SMEs that have been approved for a total £50bn worth of support loans.
The scale of business support for struggling SMEs may partly explain the trend in corporate insolvencies. When compared to the same month last year, the overall number of company insolvencies fell by 50%. The Insolvency Service states this was likely in part driven by the government measures put in place in response to the coronavirus pandemic. The measures include:
Jo Windsor, partner at Linklaters, said: “Temporary restrictions on creditors forcing companies into liquidation, together with the availability of government support measures, have prevented a surge in the number of companies filing for insolvency. Once these restrictions fall away, currently planned for the end of September, then the true cost of the lockdown measures will become more visible.
“The figures for the next few months may also increase as a result of companies emerging from lockdown coming to the conclusion that their business is no longer economically viable in the current environment.”
Christina Fitzgerald, vice president of R3, said: “The monthly statistics still do not show the effects of the pandemic on personal and corporate insolvency levels. In part this is because of the time it takes to setup and enter corporate and personal insolvency processes, but also because of the government’s support measures, which will have provided a valuable safety net for many people and businesses.”
Fitzgerald added: “There has been, however, a significant increase in existing and new clients asking for support with managing a reduction in demand for their products and services.”