- UK Insolvency Statistics: Q1 2020 - An expert’s analysis
UK Insolvency Statistics: Q1 2020 – An expert’s analysis
UK Insolvency Statistics: Q1 2020 – An expert’s analysis30th April 2020 - Published by Kuits restructuring & insolvency team
Head of Restructuring & Insolvency for Kuits, Richard Palmer, gives his expert insight into what the latest insolvency statistics mean.
We may be in unprecedented times, but as usual the Insolvency Service released statistics for Q1 2020 today – albeit with the following caveat for both the corporate and individual statistics: These statistics cover the period up to, and including, the 31st March 2020, and largely predate the emergence of, and response to, the Coronavirus (COVID-19) pandemic.
So, what can we glean from them?
There were a total of 3,883 corporate insolvencies in Q1 2020, the lowest number since Q2 2018. This is down 8.5% on Q1 2019. This is at a time when much industry forecasting would have expected an increase. Compulsory liquidations fell by 14.7% from 822 to 701. The corporate insolvency statistics are available here.
My last considerations for the future failed to consider a worldwide pandemic. In normal times, my considerations from the last ones may stand. But times are no longer normal − Covid-19 will be far and away the biggest impact on these statistics and statistics going forward:
- Interest rates have reduced to just 0.1% and HMRC are unlikely to take action on live liabilities due to deferrals any time soon.
- Petitioners may either have their ability to petition reduced or will be more willing to accept settlements with debtors. HMRC will show much more forbearance to taxpayers struggling to pay liabilities.
- Support measures such as those surrounding business rates, furlough and VAT are available to all businesses, regardless of the effect of COVID-19 on that business.
My initial view is that there will be a significant fall in the level of presently-monitored corporate insolvency activity in Q2 2020 in most sectors, and almost certainly until such time as the support measures available for businesses come to an end. Countering this are two points:
- Accessibility and time to get funding either under CBILS or Bounce Back Loans;
- The high number of high-profile administrations in the retail and leisure sectors;
- Consumer spending will hugely contract; the Centre for Economics and Business Research expects it to contract £23bn in the next few months. That is nearly £1,000 per household. And the ONS reports that UK retail sales declined 5.1% in March from February – its biggest ever drop;
- Concern that GDP could shrink by as much as 35% this quarter.
It remains to be seen how support measures that may be incorporated into the Corporate Insolvency and Governance Bill will be measured. For example, the “Cross-Class Cram Down” is to be a new (court) process available to both solvent and insolvent companies. The statistics of this should be straightforward enough to collate. A practical point to consider when legislation is out is whether Cross-Class Cram Downs will be of proportionate cost for SMEs.
There were a total of 27,849 individual insolvencies in Q1 2020. This is down 11.2% on Q1 2019. Interestingly, there were 77 more bankruptcies in Q1 2020 than Q1 2019, at a time when many petitions would have been heard in the last two weeks of March. 3,649 of the 4,261 bankruptcies were on debtor petitions; in Q1 2019 it was 3,357 of 4,148, so an increase of 8.7%. The individual insolvency statistics are available here.
In my last article (available here), I speculated that “consumer” insolvencies may increase from 2021, but noted that wages growth significantly exceeded CPI in 2019. IVAs are down 17.7% on Q1 2019, a reduction from 20,299, which is seasonally adjusted from 20,325, to 16,714 (not seasonally adjusted).