Do the promising Q2 Insolvency statistics in the UK tell the full story?

COVID-19 Advice

The Insolvency Service have released their most recent set of quarterly statistics covering April to June of this year, which make for interesting reading.

Overall, there has been a significant drop in the number of company insolvencies in England and Wales, falling by 23% in Q2 2020 as compared to Q1 2020, as well as a notable drop of 33% when compared with the same quarter in 2019. There has been a total of 2,974 company insolvencies in the UK this quarter – compared to 3,848 in Q1 2020 and 4,425 in Q2 2019.

Whilst this would be a cause for celebration in more ‘normal’ times, we would suggest that they should be viewed with an element of caution given the unusual economic circumstances at present. It is not as simple as them being a clear sign that the UK economy has successfully navigated the COVID-19 crisis.

Government measures

This notable reduction in company insolvencies, through measures such as a company liquidation, can be attributed to several key government measures that were enacted in response to the coronavirus pandemic, such as:

• Reducing the operational running of the courts and reducing HMRC enforcement activity since the beginning of the UK lockdown, applied on the evening of 23 March;
• Temporary restrictions on using statutory demands and certain winding-up petitions (leading to company compulsory liquidations) from 27 April, which was extended to 30 September 2020 under the Corporate Insolvency and Governance Act;
• Enhancing the Government’s financial support for companies and individuals, with the Coronavirus Job Retention Scheme (CJRS), Bounce Back Loans and several grants and other measures;
• Advising financial service regulators that individuals and businesses in financial difficulty should be treated with forbearance and due consideration at this time.

This set of measures have given many companies the time to take stock, providing a short-term safety net, but this does not necessarily mean that businesses are safe. With the furlough scheme being wound up and the Eat out to Help Out scheme – a significant short term boost for the hospitality industry – ending, it remains to be seen how much of an impact these will have on many companies’ sustainability.

The retail industry as a whole has also had to adapt to huge shifts in shopping patterns, changes which are already having a significant impact on even the most established High Street brands such as Marks & Spencer and Debenhams. The future is still highly uncertain in this regard.

What next?

As we see the level of government support withdrawn throughout Q3 of 2020, we would sadly anticipate a sizable increase in the number of insolvencies this quarter.

For anyone who is concerned about the future of their business, we would encourage you to get in touch with us now by calling 0300 303 8284 or emailing enquiries@theinsolvencyexperts.co.uk, with our expert team happy to advise on the best options to sustain your business through the rest of the year and beyond.