March insolvency statistics - This is the lull before the storm, says UK’s largest accountancy firm for SMEs
Nicola Clark, Restructuring and Insolvency Partners at Azets, the UK’s largest regional accountancy and business advisors to SMEs, comments on the March 2021 corporate and personal insolvency statistics for England and Wales.
Nicola Clark, Restructuring and Insolvency Partner at Azets in the North West said: “We now have a full-year picture of the effects of the pandemic; and accompanying government support measures, on corporate insolvency volumes.
“Throughout the year, the number of corporate insolvencies has typically been 30%-40% below the prior year (2019). This trend continues to be reflected in the number (992) for last month (March 2021) that is 20% below March 2020; the start of the first lockdown, that was itself 22% down in volume on the prior year (March 2019).
“Clearly government support measures such as loans and suspension of creditor rights to enforce payment by debtor companies have helped many companies ride out the economic storm caused by the pandemic, including thousands of companies that were already financially weak before the pandemic started.
“This cannot go on forever. In past economic recessionary shocks, the greatest number of corporate failures happen immediately after; rather than before or during, as companies grapple with the twin challenges of rebuilding their business, whilst having to start to repay historic debt, which results in ‘over-trading’ relative to their available financial capital.
“This is the lull before the storm which is reflected in the low numbers of moratoriums (4) and restructuring plans (5) since these new tools were introduced by the Corporate Insolvency & Governance Act 2020 came into force (26 June 2020). Business owners need to act now to avoid tipping over the edge this year.”
Nicola Clark, Restructuring and Insolvency Partner at Azets in the North West added: “Formal insolvency processes that people are able to personally apply for have seen a considerable rise with IVAs up by 83% in February and more debtors filing for their own bankruptcies and Debt Relief Orders which also rose by 15%.
“This means that people are seriously feeling the pressure of the debt burden and are finding they now have no alternative but to enter formal insolvency proceedings to deal with the mounting debt problem. After a year of lock down and furlough, many are now finding they’re unable to hold on any longer and are having to seek the relief of the insolvency regime to relieve the pressure they are under.
“Mental health issues and other stresses continue to mount as a result of the pandemic and lockdowns, so it's not surprising that people are deciding they have no alternative. History has shown that when people feel under pressure financially, this does affect the recovery of businesses. The high street may find that despite shops opening up again, they may not get the return to the same level of customer spending they had before.”