Mon 02 Nov 2020

Corporate Insolvency Statistics - September 2020

The Insolvency Service has released the latest insolvency statistics (to September 2020). 

These figures are particularly interesting as they shed light on the effects of the various changes to the insolvency landscape that have occurred since Covid-19 started to affect the economy.

Since March 2020, we have seen the introduction of the Corporate Insolvency & Governance Act ("CIGA"), Government schemes and lockdowns of various sizes, shapes and geographical restrictions. 

A link to the Insolvency Service release is attached here

What is most striking is that the number of corporate insolvencies has decreased substantially compared to September 2019. In Scotland the reduction is approximately 43% (39% in England & Wales). The reduction in Scotland has been largely caused by far lower numbers of compulsory liquidations. This no doubt reflects the CIGA prohibition on creditors using winding up petitions against debtors. 

The CIGA provisions and the other schemes were, of course, put in place to assist businesses and were intended to avoid the high levels of corporate insolvency that would have been caused by the issues associated with Covid-19 (in particular the effects of locking down). Avoiding a massive increase in insolvencies was the Government's aim and the provisions and schemes seem to have achieved that outcome (at least for the moment).

However, the restriction on creditors using winding up petitions is currently due to come to an end on December 31 2020, the relaxation of wrongful trading has already ended and just how aggressive HMRC will be in recovering tax arrears going forward remains to be seen. The crucial question will be - what will the insolvency numbers look like for January, February and March 2021?  Will those months see substantially higher numbers caused by a pent up demand for creditor driven windings up and directors admitting that the economic consequences of the pandemic are just too hard to get through?

At some point the true insolvency cost of the pandemic will have to be paid and the current numbers are an indication that the measures put in place have merely delayed the inevitable.

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