Rise in Insolvencies Driven by Increase in Creditors’ Voluntary Liquidations
The Insolvency Service has reported a sharp increase in corporate insolvencies across England and Wales in the second quarter of 2021, with Creditors’ Voluntary Liquidations (CVLs) accounting for a large majority of cases in the period.
After seasonal adjustments, there is understood to have been a 31 per cent increase in the number of corporate insolvencies in Q2 2021 compared with the previous three months.
A total of 3,116 companies entered insolvency between April and the end of June this year, which is a figure up by 4 per cent compared to the same period in 2020.
Of all the insolvency cases reported in Q2 2021, roughly nine out of 10 were resolved through CVL procedures, with 5 per cent involving administration and 3 per cent being compulsory liquidations.
The Insolvency Service describes the headline figure on corporate insolvencies in recent months as having been “driven by a rise in CVLs”, which it says increased in number by 39 per cent from the first quarter of this year to the second.
The latest figures also indicate that the number compulsory liquidations fell in the second quarter of 2021 in comparison to both the first quarter of this year and the second quarter of 2020.
It was reported recently by the corporate insolvency experts of Begbies Traynor that there were approximately 650,000 businesses in the UK in a position of “significant financial distress” during the second quarter of this year.
Julie Palmer, a partner at Begbies Traynor, has said that the UK currently has a considerable number of “zombie companies” and that, as the economy begins to recover from the pandemic, many businesses find themselves in a “fragile state” financially.
Ms Palmer has suggested that many companies took on government-backed debt to survive the pandemic but now cannot pay back what money they owe, even if interest rates aren’t as high as they might otherwise have been.
Begbies Traynor has also noted that court actions relating to business debts are beginning to pick up, which is likely to have the effect of increasing cases of insolvency and liquidation in the coming months.