The monthly insolvency statistics for September 2021 released by the Insolvency Service show that corporate insolvencies have now reached their pre-pandemic levels. They were suppressed from the first “lockdown” by the Government’s temporary support measures that helped businesses continue to trade during the pandemic, but began creeping up once the provisions suspending liability for wrongful trading expired on 30 June 2021.

The Insolvency Service explains:

The number of registered company insolvencies in September 2021 was 1,446:

  • 56% higher than the number registered in the same month in the previous year (928 in September 2020), but
  • 4% lower than the number registered two years previously (pre-pandemic; 1,510 in September 2019).

In September 2021 there were 1,328 Creditors’ Voluntary Liquidations (CVLs), which is the highest level seen in the series since January 2019. The number of registered company insolvencies was similar to pre-pandemic levels, driven by this higher number of CVLs, although other types of company insolvencies, such as compulsory liquidations, remained lower.

These figures come just a week after the Bank of England published their Financial Stability in Focus report on 8 October 2021. With the increased debt burden taken on by small and medium-sized enterprises (SMEs) during the pandemic and the staggered end to the remaining coronavirus support measures in 2022, the Bank predicts that this increase in corporate insolvencies will continue into next year. They say:

The increase in debt in the UK corporate sector has been concentrated in some sectors and types of businesses, in particular in small and medium-sized enterprises (SMEs). Many of these SMEs had not previously borrowed and some would not have previously met lenders’ lending criteria. The increase in debt – though moderate in aggregate – has likely led to increases in the number and scale of more vulnerable businesses. As the economy recovers and government support, including restrictions on winding up orders, falls away, business insolvencies are expected to increase from historically low levels.

…

Although debt appears affordable in the near term, insolvencies are likely to rise from 2021 Q4 as government support is withdrawn as planned. Insolvencies have been limited during the Covid pandemic. But it is likely they would have been significantly higher in the absence of government measures …, support from the financial system and temporary changes to insolvency legislation including the restrictions on winding-up petitions which began to be relaxed from the end of September.

There have been at least 6,000 fewer insolvencies since the start of the Covid pandemic than might have been expected given the average level of insolvencies in the years leading up to the pandemic. Some of these may have been prevented altogether, but others are likely to materialise in the period ahead as support measures unwind, repayments on new borrowing begin, and other obligations postponed under deferral schemes – such as the VAT deferral scheme become due.

If your company is in financial difficulty, it is important you take advice at an early stage to reduce the risk of insolvency and potential exposure of the directors to personal liability.