What do the insolvency statistics say about the impact on UK businesses post-lockdown?
The Insolvency Service has released statistics on the level of insolvencies in April 2020. This allows us to take a look at the immediate effect of insolvencies post-lockdown compared with those before.
Overall, in terms of company insolvency, the average daily number of insolvencies registered at Companies House prior to the March 23 lockdown was 66. There was a temporary dip in the week after the lockdown which was probably due to a number of factors including in part, to the courts, insolvency professionals and Companies House having to adjust to new working practices together with a general level of uncertainty which may have delayed the actions of creditors and directors alike. However allowing for this dip, insolvencies though the month of April averaged out at 60 a day, putting April insolvencies at a similar rate to pre-lockdown levels. A slightly lower number is accounted for by a lower number of compulsory winding-up orders; perhaps unsurprising given that the hearings of a number of petitions were adjourned by the courts or pursuant to the Temporary Practice Direction.
Other company insolvencies have remained broadly constant throughout March and April.
The statistics perhaps reflect that numerous measures were put in place to attempt to alleviate companies in distress due to the lockdown, from restrictions on the issuing and hearing of winding-up petitions, restrictions on Landlord’s ability to forfeit, HMRC taking less enforcement activity, creditor companies and financiers considering alternatives to insolvency, and businesses being able to furlough staff and take advantage of government backed loans and grants. This has provided the tools for many companies to, hopefully, trade through this difficult time. The numbers may also suggest that a number of insolvencies that have occurred in April were likely to have happened anyway, regardless of COVID-19, although the lockdown may well have been the “final straw”.
The level of insolvencies in April should not perhaps be interpreted too optimistically about the effects of the lockdown on the UK economy, given that the predictions are that the UK is heading towards a big recession. If anything, as the UK starts to “unlock” and protective measures and financial support measures such as the Coronavirus Job Retention Scheme start to fall away, companies are likely to see the real impact that COVID-19 has had on their underlying businesses. We should not discount the prospects of a sharp rise of insolvencies over the coming months and it will be interesting to see how the statistics change over the next few months as the UK tries to restart its economy.