Corporate insolvency rise indicates start of struggle for businesses

A month-on-month rise in the number of corporate insolvencies in England and Wales may indicate that businesses which were healthy and profitable pre-COVID-19 are now starting to struggle.

This is according to the Midlands branch of insolvency and restructuring trade body R3 and comes on the back of figures published by the Government’s Insolvency Service which show that the number of companies entering insolvency increased to 926 in September 2020 compared to August’s figure of 784.

R3 Midlands chair Eddie Williams, a partner at Grant Thornton in the East Midlands, said: “The latest statistics are something of a reversal of a downward trend in corporate insolvency numbers post-lockdown and have been driven by an increase in the number of Creditors’ Voluntary Liquidations and, to a lesser extent, Company Voluntary Arrangements.

“The figures are only now beginning to demonstrate the toll that COVID-19 is taking on once-healthy businesses, with many companies profitable at the start of the year starting to struggle for the first time due to the pandemic.”

Eddie Williams points out that despite the increase in corporate insolvencies, the monthly statistics remain lower than those recorded pre-lockdown and do not fully reflect the state of local businesses and the economy.

He explained: “Due to the recent extension of a number of the Government’s temporary insolvency measures, and with the announcement of plans to continue supporting COVID-hit businesses and individuals, it’s likely that a trend of unrepresentative insolvency statistics will continue for some time.

“It is crucial, therefore, that the current situation for businesses is not underestimated. The economy remains 9% below pre-pandemic levels, despite growth of 2.1% in August, showing that it has failed to recover fully from its significant contraction in April. There are also greater numbers of big brands entering formal insolvency processes, or considering restructuring options, as the delay in returning to pre-pandemic conditions hampers trading.

“R3’s advice to directors of struggling businesses is to seek advice as soon as possible. The earlier advice is sought, the greater the number of options available to turn the situation around. The majority of R3 members will offer a free, confidential initial consultation to people who require help with their personal or business finances and who wish to explore their options.”