The fall in company insolvencies compared to the last quarter is likely to continue as a result of the extension of financial support by government – however it’s just a matter of time until the figures start to rise.
This is according to Gareth Ransley, Associate Director at CVR Global, who was reacting to the Chancellor’s extension of the furlough scheme to March 2021 and reflecting on the Insolvency Service’s recent quarterly company insolvency statistics.
Insolvencies fell by nine percent in Q3 of 2020 compared to Q2, and were 39 per cent lower than Q3 in 2019, according to the Insolvency Service’s quarterly company insolvency statistics.
But although insolvencies fell, compulsory liquidations went up by 42 per cent, and CVAs by 34 per cent – although overall numbers of CVAs are low so the percentage figure does not actually represent a large numerical increase.
The report states the reduction in company insolvencies in the latest quarter compared with last year was likely to be in part driven by the range of Government support put in place to financially support companies in response to the Coronavirus pandemic.
The three industries that experienced the highest number of insolvencies were construction, wholesale retail trade and repair of vehicles industrial grouping, and the accommodation and food services grouping.
Gareth Ransley, Associate Director at CVR Global, said: “The numbers released by the Insolvency Service last month were low largely due to Government support and as a result of the Coronavirus Job Retention Scheme being extended, we may see a further period of low numbers.
“Construction has again been hit hard and there has naturally been some contraction there with less investor confidence in supporting projects.
“At CVR Global we have seen an uplift in enquiries of late, however that hasn’t led to a flood of action, and it is likely that many businesses will now hold off taking action due to the support available.
“However, there is a range of potential cashflow issues on the horizon which could lead to a surge in insolvencies, with another rent quarter coming up, deferred tax due soon and HMRC regaining its status as preferential creditor from December 1. The latter may make lenders more strict in who they lend to.
“The insolvency picture as it stands isn’t a surprising one, but it’s a matter of when, not if, it will turn.
“For businesses that have serious issues the new support measures are just another delay, unfortunately not all businesses problems can be solved through furlough and tax support, and the problem will still be there in Q1 and Q2 of 2021.”