Insolvency Statistics: Our Commentary
Terry Bell, Chairman at Bell & Company, provides commentary on the recently published Q3 2021 insolvency statistics.
From July to September, the level of company insolvencies increased by 17% compared to the previous quarter. This is 43% higher than Q3 2020 and is the highest quarterly level since Q2 2009.
Government support over the past 18 months has helped keep company insolvencies low. This data shows that insolvency is now returning to pre-pandemic levels.
What is particularly concerning is that we are seeing this increase before government protections have ended. Restrictions on Statutory Demands and the moratorium on winding-up petitions were removed at the end of September. We are likely only beginning to see the cumulative economic effects of Coronavirus, supply chain problems and cash flow issues.
The sectors with the highest levels of insolvency were; construction, accounting for 17% of all insolvencies, hospitality, making up 13% and car sales and repairs, making up 12%.
This data clearly reflects the impacts of Coronavirus for businesses in real terms. The construction and hospitality industries have historically been some of the most vulnerable sectors of the economy. The past 18 months have had a serious impact across the board but clearly, some areas are worse affected. The hope is that reopening the economy will allow these sectors to recover but it will be too late for many indebted businesses.
The increase in insolvencies was driven by a jump in the number of Creditor’s Voluntary Liquidations (CVLs). These accounted for 92% of insolvencies and increased by 19% compared to Q2 and 86% compared to Q3 last year.
The high number of voluntary liquidations shows that directors are choosing to close their businesses after a difficult 18 months. A perfect storm of debt, supply issues, rising costs and reduced consumer confidence have combined to push more businesses into insolvency.
As businesses enter their Golden Quarter, we are likely to see a ‘make or break’ situation for many. Directors need to be aware of the warning signs that their business may be in trouble. These include cash flow, inability to pay staff and/or suppliers and falling behind on debt repayments. If they are worried about any of these issues they should get expert advice immediately – the longer you wait, the worse it gets.
From July to September, the level of individual insolvencies decreased by 2% compared to the previous quarter but are 33% higher than Q3 2020. Personal insolvencies are at historically low levels.
Protections and court closures had kept personal insolvency levels low throughout the pandemic. However, the change in eligibility criteria for Debt Relief Orders has led to a significant increase in their use. This suggests that many more people are seeking a way to deal with unmanageable debts.
Although the past 18 months have allowed some to save, it has destroyed the personal finances of others and led to higher levels of borrowing. Furlough and other mitigations have helped but these are now coming to an end. Moving forward we are likely to see an increase in the number of creditors petitioning for Bankruptcy and people applying for IVAs.
Our advice is the same for anyone, if you are struggling to manage your debts, get the right advice. There is always a solution but you need to have the initial conversation before anything can change.