As we emerge from COVID-19 restrictions, the true impact the past two years and the pandemic has had on businesses across the United Kingdom and globally is becoming ever more apparent. The Insolvency Service has taken to releasing monthly insolvency statistics and will continue to for a period following the pandemic – the most recent data was released in January and may surprise some. This article provides a look at what has been released and our commentary on company insolvency in the United Kingdom.
January 2022 recorded 1,560 company insolvencies, with by far the lion’s share made up of Creditors’ Voluntary Liquidations (1,358). To put that into context,
- That’s more than double the number of company insolvencies registered in January 2021 (758); and
- Slightly higher than the number of company insolvencies registered in January 2020 (1,508) – i.e. it surpasses the number of company insolvencies in a single month than in pre-pandemic times.
As can be seen from the above chart, there has been a gradual increase in the number of compulsory liquidations, but it remains very low. Perhaps surprising, some would expect there to have been a much greater increase in the number of compulsory liquidations following the loosening of the restrictions on winding up petitions and statutory demands in the Corporate Insolvency and Governance Act 2020 (CIGA).
The much stricter regime of winding up petitions and statutory demands in schedule 10 of CIGA was revised in October last year. Under the current regime, the longstanding debt threshold for the issuing of a winding-up petition was temporarily increased to £10,000 or more, and creditors are required to seek proposals for payment from debtors, with debtors being given 21 days to respond before the creditors can proceed with winding-up action.
It could be that the current regime is meeting its purpose – encouraging engagement with creditors and debtors to reach sensible terms – or it could simply be that the court system is log-jammed with winding-up petitions and it is too early to glean the full extent of the impact that the COVID-19 pandemic has had on our economy.
The current suite of restrictions will fall away on 31 March 2022. It may be that this deadline is extended or perhaps even replaced with an even lighter set of restrictions – for instance, we foresee a permanent increase in the pre-existing threshold for the presentation of winding up petition – £750, regarded by many as outdated and simply too low to trigger a winding-up petition. We wait to see what, if any, new measures are put in place ahead of next month’s longstop date for the current suite of restrictions.
Until then, it is clear that directors of struggling companies can see the writing is on the wall and are, sensibly, starting to take pre-emptive action. The upward trend in company insolvencies looks set to only head in an upward trajectory for some time to come.
How can we help?
Prosperity Law LLP has specific expertise in advising a wide range of clients on matters relating to corporate governance and insolvency.
For more information, please contact Simon Gerrard, Partner and Head of Insolvency, on 0161 667 3686 or at simon@prosperitylaw.com.
