Following on the heels of the difficulties caused by Covid-19, rapidly rising inflation, supply chain difficulties and increasing interest rates are the key causes of the highest quarterly level of Creditors Voluntary Liquidations (Q2 2022) since 1960.
The article below was written in May 2022, just after the Insolvency Service published the March 2022 Insolvency figures, which saw the highest number of insolvencies recorded since Q3 2017. The most recent Insolvency Service data for Q2 2022 shows that this trend is continuing, so we update the article with the most recent figures.
Creditors Voluntary Liquidations hit a record high
The Insolvency Service’s figures for Q2 2022 for England and Wales show show there were 5,629 company insolvencies in April-June, up 13% on the last quarter, and 81% more than a year ago – the highest level for 60 years. Of these, 4,908 were Creditors Voluntary Liquidations.
The causes of this are a continuation of the pressures we detailed below, which are leading directors to opt to close their businesses, already struggling due to the severe cash flow problems caused by soaring energy and fuel costs coming hard on the heels of supply chain problems and also a tight labour market. This is especially so for those businesses still reeling from the problems caused by the Pandemic.
The figures from March 2022 showed, company insolvencies in England and Wales more than doubled compared to March 2021 – 2,114 versus 999. The figure for February 2022 was 1,516. Indeed, the first quarter of 2022 saw the highest number of insolvencies recorded since Q3 2017. Perhaps even more telling was that c.87% of the insolvencies – 1,844 – were Creditors Voluntary Liquidations (CVLs), also more than double a year ago. In this article, Stephen Evans one of our Insolvency Consultants looks at what is driving this situation.
Many companies were still recovering from the Pandemic when inflationary pressures and interest rate increases started.
Our Consultant Insolvency Practitioner, Stephen Evans wrote:
“Many thousands of firms who were adversely affected by the Pandemic were able to get through thanks to the unprecedented levels of Government support, from the Furlough scheme to Bounce Back Loans. Now that this support has been withdrawn, the Insolvency profession had certainly been expecting an increase in insolvencies because the loans still needed to be repaid and many businesses needed to get back to at least ‘normal’ trading as quickly as possible.
The official insolvency statistics have been increasing for several quarters, and continue to do so, but now businesses are really feeling the squeeze as inflation has increased to levels not seen in 30 years. Coupled with interest rate rises, many businesses that were just about hanging on post-Pandemic, can no longer service their debts and have been pushed over the edge. The difference between now and the midst of the pandemic is that there is no Government support available to help firms in trouble.
What we are also finding is that the vast majority of insolvencies are Creditors Voluntary Liquidations, as there is frequently little or nothing of the business to rescue (either through an Administration or a Company Voluntary Arrangement) as directors try to hang on in a vain attempt to rescue the Company themselves.
As a result of all the uncertainties, there is no doubt that companies are experiencing supply chain problems. This, in turn, makes planning and quoting for jobs/orders more difficult, leading to very tight markets in which everyone is trying hard to become more competitive. Consequently, to get the orders, Companies are not always able to pass on the additional costs being incurred. Margins are eroded and losses are made and, often very quickly, insolvency strikes.”
A CVL is a solution to Creditor Pressure.
If the company cannot be saved by using a restructuring/turnaround insolvency process, such as a Company Voluntary Arrangement or a Company Administration, then it is highly likely that a Creditors Voluntary Liquidation (CVL) will be needed. A CVL can only be carried out by an Insolvency Practitioner, and we will only recommend a CVL if there are no other options.
Some of the key benefits of a CVL are:
- Once one of our qualified Insolvency Practitioners has been appointed as Liquidator, the company’s creditors will need to communicate with us and not with you as a director.
- We help Employees claim unpaid wages, including holiday pay, redundancy pay and loss of notice pay.
- Remote attendance at key meetings. Allows for quicker resolutions.
- Prevents further losses being incurred.
Many thousands of companies are facing significant financial difficulties right now, including struggling to pay HMRC or repay a Bounce Back Loan. It is a massively stressful time for directors and all involved.
If insolvency is looming, the sooner the directors have a FREE no obligation consultation from one of our Insolvency Practitioners, the more we can do to help.
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