The UK's 2020 company insolvency statistics: the calm before the storm?

The UK's latest quarterly company insolvency statistics, including the 2020 annual summary, were published on 29 January, painting a picture of the effectiveness of government measures introduced over the past year to support companies during the COVID-19 pandemic.

Despite some high-profile instances of companies entering insolvency processes during 2020, the data shows that the total number of registered underlying company insolvencies in the year decreased to the lowest annual level since 1989, with 27 per cent fewer insolvencies compared to the 2019 figures. This decrease was driven largely by a fall in company voluntary liquidations, which reached the lowest annual level since 2007. Compulsory liquidations and company voluntary arrangements also dropped to the lowest annual levels since 1973 and 1993 respectively.

While, on the surface, this appears to be surprisingly good news, the report acknowledges that the fall in insolvencies is at least in part a result of government measures introduced in response to COVID-19, including:

• reduced HMRC enforcement activity since the first lockdown of 2020; 
• the provisions of the Corporate Insolvency and Governance Act 2020 (CIGA), including restrictions on winding-up petitions and the introduction of the restructuring plan; 
• enhanced financial support for companies and individuals; and 
• advice from financial service regulators that individuals and businesses encountering financial hardship should be treated with forbearance and due consideration.

Between 26 June and 31 December 2020, four companies had obtained a moratorium on winding-up petitions introduced by CIGA, and three companies had a restructuring plan sanctioned by the court. This relatively small number of companies resorting to the measures introduced by CIGA indicates that the Government's financial support (including loans, tax relief, cash grants and the furlough scheme) has been instrumental in preventing the wave of corporate insolvencies that would be expected in the wake of a severe downturn and unprecedented economic shifts including country-wide lockdowns.

It is important to bear in mind that the current government support is not indefinite. And while state intervention appears to have provided respite for ailing businesses so far, all eyes will be on the statistics published after these measures are phased out.