Q1 2021 insolvency statistics, R3 response

30 April 2021

Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets, responds to the Q1 2021 England & Wales corporate and individual insolvency statistics, which were published this morning by the Insolvency Service.

Corporate

• There were 2,384 seasonally adjusted corporate insolvencies in Q1 2021, a reduction of 21.9% compared to Q4 2020's figures of 3,053 and a fall of 38.3% compared to Q1 2020 (3,863).

"The quarterly fall in corporate insolvencies - to the lowest quarterly total on record - has been driven by a drop in all corporate insolvency processes. However, the increase in corporate insolvencies between February and March of this year, which was reported earlier this month, suggests corporate insolvencies may now be on the rise.

"It's clear Government's support measures are still helping to keep businesses going, but they have pushed back rather than prevented the financial pain of the pandemic from translating into a sharp, sustained increase in corporate insolvencies.

"The total number of corporate insolvencies between April 2020 and March 2021 fell by more than a third compared with the same period a year earlier, while GDP fell nearly eight per cent during the same period. A drop in corporate insolvencies of this scale during an economic climate like this suggests that corporate insolvencies are likely to rise - and rise sharply - in future.

"The first three months of 2021 have been tough for businesses, and followed a year of pandemic-induced problems - shutdowns, re-openings, and the challenges of working in a way that's compliant with social distancing guidelines.

"Looking more widely, the economy has not recovered from the onset last April of the unprecedented economic contraction, while consumer confidence has also remained low. And although consumer spending increased towards the middle of March this year, it still remained well below 2019 and 2020 levels for the majority of the first three months of this year. 

"As the Covid restrictions lift and we begin to return to normality, businesses face three key challenges. First, they need to keep a careful eye on their cashflow levels to ensure they don't fall into the trap of over-trading.

"They also need to make sure they have a plan for reopening in a way that's sustainable, so they don't undo their efforts to survive the last year by mismanaging the next couple of months.  

"And they need to think about how they will manage when the Government support measures end. Many company directors have delayed planning for this, but they need to use the remaining time they have to put a plan in place for the final quarter of this year and beyond, before the majority of the measures end in June, and furlough is wound up in September.

"We urge anyone who is worried about their business's finances to seek advice from a qualified source as soon as they become concerned. Doing so will give them more options to turn their financial situation around, and more time to take a considered decision about the best approach for their business."

Individual

• There were 29,140 seasonally adjusted individual insolvencies in Q1 2021, a fall of 5.3% compared to Q4 2020's figure of 30,769, and a rise of 0.7% compared to Q1 2020 (28,936).

"Personal insolvencies fell in Q1 compared with the final quarter of last year, but they are now slightly above where they were this time last year - that is, the period just before the full impact of the pandemic mostly became known.

"Bankruptcies in particular are notably lower this quarter than in Q4 of 2020, and Individual Voluntary Arrangements have also decreased, with the fall in Debt Relief Orders less abrupt. The quarter-on-year rise, meanwhile, is driven entirely by a notable increase in IVAs.

"It still is not entirely clear how the last three months of the pandemic are affecting individuals. It's been a torrid twelve months for many people and their personal finances, and while IVAs tend to correlate to consumer debts, the gap in bankruptcies and DROs compared with this time last year means there may be more pain ahead if and when these figures start to revert to more 'normal' historical levels.

"Government programmes like the furlough scheme, and payment holidays on loans, mortgages and credit cards, have helped many people affected by the pandemic avoid insolvency.

"However, many private sector support schemes have ended, while the furlough scheme ends in September - and while many have been helped by furlough and debt repayment holidays, not everyone has been able to benefit from them.

"While some have managed to save during the pandemic, others have had to borrow in order to survive, and, as a result, will be more vulnerable to the financial problems caused by unexpected issues like redundancy or reduced hours at work. 

"The introduction of the breathing space scheme in May will give people who are in debt the opportunity to talk to an adviser about their options for resolving their financial difficulties without any pressure from their creditors.

"This is welcome, and could provide people who are struggling with the time and space to resolve their financial difficulties, but we would urge anyone who is worried about their finances to seek advice - and to do it now.

"Talking about money worries is hard, but discussing your concerns with a professional will give you more time and more options to resolve your situation than if you'd waited."