Monthly insolvency statistics: More of the picture

27 May 2020

On May 15^th, for the first time, the Insolvency Service (IS) released monthly figures for corporate and personal insolvencies (NB: corporate: England & Wales, Scotland; personal: England & Wales). The IS said that it was publishing on a monthly (rather than quarterly, as previously) basis “to provide more up to date information on the numbers of companies and individuals who are unable to pay debts and enter a formal insolvency procedure as the coronavirus (COVID 19) pandemic continues”.

Our statement on the monthly statistics, which will be published mid-month for an indefinite period, welcomed the move, “as these numbers will give more immediate feedback on how businesses, consumers and the wider economy are being affected”. However, as we and the IS also noted, the figures come with some caveats and ‘health warnings’ attached.

For example, with the flow of court cases greatly reduced due to the pandemic, the volume of court-based insolvency procedures has been affected. In addition, Government restrictions on enforcement actions – including statutory demands and winding-up petitions issued to commercial tenants – are delaying the commencement of insolvency proceedings.

Taken along with the financial resources the Government has ploughed into supporting employees, self-employed people, and businesses, it is perhaps not altogether surprising that the monthly statistics for April (and the results for Q1 of this year) did not show a dramatic rise in insolvencies, as might otherwise have been predicted.

R3’s members said that the insolvencies which took place in the immediate aftermath of the lockdown on 23 March were largely those of companies and individuals who were already in a distressed financial situation. It is only now, two months since the lockdown was put in place, that more businesses which had fundamentally healthy financial positions prior to the pandemic are seeking advice on their next moves, as cash begins to run out.

Corporate insolvency: Procedure and industry types

Looking at the corporate insolvency figures for England and Wales, the totals for March and April of this year are the fourth and third lowest monthly figures since January 2019:

Source: The Insolvency Service

The type of insolvency procedure used in each month shows that, while numbers of administrations, creditors’ voluntary liquidations, and Company Voluntary Arrangements were roughly the same in March and April, the number of compulsory liquidations (which require a court order) fell sharply:

Source: The Insolvency Service

In April, the three industries with the highest numbers of insolvencies were: construction (with 205 insolvencies); retail (163); and administrative and support services (137). In March, meanwhile, the three highest industries in terms of corporate insolvencies were construction (200); retail (172); and accommodation and food service activities (168).

Individual insolvency: Procedure types

The number of personal insolvencies rose by a third (33%) between March and April:

Source: The Insolvency Service

The numbers of bankruptcies and Debt Relief Orders actually fell between March and April, while the increase in overall individual insolvency was driven entirely by a sharp rise month on month in Individual Voluntary Arrangements:

Source: The Insolvency Service

The number of creditor-petitioned bankruptcies (a procedure requiring access to a court) fell to just 24 in April, down from 162 in March 2020 and 305 in April 2019.

Conclusion

It is highly likely that the statistics do not yet provide an overview of the true state of financial distress among businesses and individuals, due to factors ranging from Government support programmes providing short-term relief, to disruption to normal court processes. However, we are grateful that the statistics are to be published monthly for the foreseeable future, and look forward to digging into them, for a clearer picture of the corporate and personal financial picture.