UK insolvencies 33% above pre-pandemic levels

The number of registered company insolvencies reported in December 2021 sat at 1,486, which is an 11.4% decrease from the 1,674 reported in November but a 20% increase from the 1,237 reported in the same period in 2020 and 33% higher than December 2019’s figure of 1,120.

The Insolvency Service reported an increase of 37% in creditors’ voluntary liquidation (CVLs) with 1,365 in December 2021 compared to 999 in 2020. The number of creditors’ voluntary liquidations reported is 73% higher than pre-pandemic levels which reported 790. The highest figure was 1,521 reported in November 2021.

In other areas, the Insolvency Service saw a reduction from the figures reported in December 2020, with compulsory liquidations dropping 2% from 42 from 45, company voluntary arrangements (CVAs) saw a reduction of 84% with the Insolvency Service only reporting seven, and administrations saw a drop of 52% going from 150 last year to 72. Again, there were no receivership appointments reported.

Pranav Nadkarni, director in the advisory consulting team, Tilney Smith & Williamson, said: ‘The annual and two-yearly increase in corporate insolvencies has been driven by a rise in creditors’ voluntary liquidations, which suggests that the economic situation is pushing many company directors to voluntarily close their businesses before that decision is made for them.

‘The Omicron wave in December has had a significant impact on businesses, especially high street hospitality businesses, which saw a 40-60% drop in their December trade due to cancellations and reduced footfall.

‘The situation was aggravated by many firms reporting multiple employees testing Covid-19 positive and needing to self-isolate, along with delays in receiving the promised government grants, which could be quite catastrophic for those businesses that had already been hampered by a weak trading season.

‘This situation is still evolving, and we expect some stabilisation given the high level of immunity in the general population, either through booster jabs or previous infections, leading consumers back to pubs and restaurants over the coming months.

‘Other areas of stress are inflation, cost of materials, fuel and wages, supply chain disruptions, and the tight labour market. These macro trends are impacting and stretching businesses across the economy, however, these particularly impact SME businesses, which do not have the balance sheet to weather these multiple risks at the same time.

‘These SME suppliers that are further down the value chain may struggle in passing these cost increases to their customers, which could result in an invisible wave of insolvencies that could be quite disruptive to the overall economy.’

Regarding individual insolvency statistics, 434 bankruptcies were registered in December 2021 and were made up of 380 debtor applications and 54 creditor petitions. The 47% drop from last year’s figure of 824, with December’s figure representing the lowest monthly number since January 2019.

The Insolvency Service reported 1,872 debt relief orders (DROs) which is 51% higher than last year’s figure of 1,243 but remained 10% lower than pre-pandemic levels. This increase was likely caused by the expansion of the eligibility criteria for debt relief orders in June 2021.

Commenting on the individual bankruptcy figures, Christina Fitzgerald, vice president of insolvency and restructuring trade body R3, said: ‘The reduction we see this month has been driven by the decrease in all forms of personal insolvency process. Despite this, times are still tough for people in England and Wales.

‘Many are worried about the future of the economy and their own personal finances and are cautious about how they spend their money and what they spend it on.

‘Inflation is also becoming a problem, with rising energy bills and increasing household costs squeezing people’s finances. We’re also seeing growth in demand for unsecured credit as people turn to credit cards and overdrafts to pay for Christmas or to help manage their finances.

‘On the plus side employment is rising, but it remains to be seen whether wages will as well, as the economic effects of Covid-19 continue to hit businesses.’