In this article, Nichola Constantinides, a trainee solicitor in Howes Percival’s Insolvency & Restructuring team, looks at the rise of insolvency proceedings as the Government’s measures to support businesses through the pandemic come to an end.
At the time of writing, the most up-to-date data published by The Insolvency Service records that there were 1,674 registered company insolvencies in November 2021 which include Creditors’ Voluntary Liquidation (CVL), Compulsory Liquidation (where a winding-up order is made by the court following presentation of a winding-up petition by a creditor), Company Voluntary Arrangements (CVAs) and administrations.
This figure was 88% higher than in November 2020 and 11% higher than pre-pandemic levels in November 2019, indicating an overall rise in formal insolvency procedures.
Significantly, but perhaps unsurprisingly because of the restrictions on the presentation of winding-up petitions since March 2020, November 2021 is the first time since the start of the coronavirus pandemic that the monthly number of registered company insolvencies has exceeded pre-pandemic levels.
The increased number of CVLs, up 43% from November 2019, has driven the rise. CVLs comprised over 90% of the total registered company insolvencies in November 2021. Businesses continue to face challenges resulting from the pandemic and with less government support, and repayment of the bounce back loans becoming due, the number of directors and/or shareholders who decide voluntarily to wind up their company is likely to continue to increase.
Compulsory liquidations were up 32% from November 2020 but remained 82% lower than November 2019. This may be explained by the measures introduced to protect businesses from being forced into insolvency due to the restrictions on trading caused by the pandemic. The Corporate Insolvency and Governance Act 2020 (CIGA) initially restricted creditors from:
- Issuing statutory demands which would ordinarily be served on companies owing sums of £750 or more; and
- Presenting winding-up petitions where coronavirus had a financial effect on the business and its ability to pay its debts.
Whilst the CIGA restrictions expired on September 30, 2021, new restrictions were introduced from October 1, 2021 by the CIGA (Amendment of Schedule 10) Regulations 2021 which mean that a winding-up petition can only be presented if:
- The debt is for a liquidated sum of at least £10,000 (a substantial increase from £750) which has fallen due;
- The debt is not for rent or any other sum payable by a tenant under a ‘relevant business tenancy’ which is unpaid because of the financial effect of coronavirus;
- The creditor has delivered a written notice (compliant with the above regulations) giving the debtor 21 days to put forward proposals for repayment of the debt; and
- The debtor has not made a proposal for payment of the debt that is to the creditor’s satisfaction within 21 days, beginning on the day the notice
The latest restrictions on the presentation of winding-up petitions are due to expire in March 2022. While compulsory liquidations remain lower than pre-pandemic levels, which is at least partly attributable to the measures outlined above, they have increased since November 2020. This indicates that the easing of restrictions on winding-up petitions from October 2021 is resulting in more creditors presenting petitions and, once the current restrictions expire, it is expected that the number of compulsory liquidations will rise.
Registered company insolvencies also include CVAs and administrations as mentioned above. Ten CVAs were recorded in November 2021, which was less than the number in both November 2019 and 2020. Whilst the 93 administrations recorded in November 2021 exceeded the number of compulsory liquidations by nearly twofold, and administrations were 27% higher than in November 2020, they remained 48% lower than in November 2019.
Howes Percival has a team of professionals who have a vast range of experience in dealing with winding-up petitions as well as other measures to collect outstanding debt. Howes Percival also work closely with insolvency practitioners who can provide expert advice to assist companies who are in financial distress