The UK's latest quarterly company insolvency statistics, published on 30 April, show that insolvency rates remain significantly below pre-pandemic levels, demonstrating the continued success of government measures in preventing a COVID-19-related wave of insolvencies.
The Q1 2021 data shows that the trends from Q4 2020 continue, with the overall number of registered company insolvencies in Q1 2021 38 per cent lower than Q1 2020. It is important to keep in mind that the data released reflects company insolvency registrations rather than insolvency procedure start dates so data from Q1 2020 did not yet reflect the effects of the COVID-19 pandemic and ended before the implementation of government measures.
Creditors’ voluntary liquidations made up the clear majority of insolvencies in Q1 2021 but these are still down 24 per cent on 2020. Administrations have been stable across the quarter but are still 52 per cent lower than the same period in 2020. Compulsory liquidations have declined the most and are 26 per cent lower than the previous quarter and 85 per cent lower than Q1 2020. This does not come as a surprise as restrictions on the use of statutory demands and winding-up petitions remain in place.
The number of companies resorting to the measures introduced by CIGA remains low for now. In Q1 2021 no companies obtained a CIGA moratorium, and only two companies had a restructuring plan sanctioned by the court.
CVAs are also down 54 per cent and 46 per cent on Q4 2020 and Q1 2020 respectively. There is often a bumper crop of CVAs in the first quarter ahead of the new rates year, but that has not happened. It may be that companies are hesitating, awaiting the imminent outcome of the Virgin Active restructuring plan (which is being challenged by landlords) and the New Look and Regis CVA challenges. But with over £5bn owed in rent arrears as at 9 April 2021, and the Government’s commercial tenant protections set to end on 30 June 2021, this remains an area to watch in the coming weeks.
The trend remains a reduction in the number of company insolvencies compared to the previous year but the report acknowledges that this is likely to be in large part driven by the range of government support put in place in response to the COVID-19 pandemic. The key question remains how and when these measures will be lifted, and whether this can be done without triggering a surge in insolvencies.
Even a return to pre-pandemic levels of insolvencies would represent a significant increase from the current position and on top of that there may be a tidal wave of impending insolvencies that have been suppressed by the government measures. The Government is clearly mindful of the cliff edge risk and has for instance flagged in its call for evidence in relation to commercial forfeiture and COVID-19 that they 'are interested in the length of time for which these measures should be in place and how they relate to the other measures'.