There has been a sudden surge in personal and corporate insolvencies, due mainly to the effects of the Covid pandemic.
Sam Lyon Associate Solicitor and Head of Corporate & Commercial reports.
Figures released by the Insolvency Service show there were 1,228 business failures in December 2020 compared with 891 in November. That’s a rise of 37.8%. It’s also 9.2% higher than in December 2019, when there were 1,125 insolvencies.
There were 9,518 personal insolvencies, a rise of 2% on November’s figure of 9,328, and 13.4% higher than the December 2019 figure of 8,391.
The figures might have been worse if not for the Corporate Insolvency and Governance Act 2020, which came into force last June. It introduced measures to relieve the burden on businesses during the pandemic.
These measures include a moratorium to give companies breathing space from their creditors while they seek a rescue, and a restructuring plan that allows companies to restructure unmanageable debt.
The Insolvency Service says that overall, the numbers of company and individual insolvencies have remained low since the start of the first UK lockdown in March 2020, when compared with the same period in 2019.
This was likely to be at least partly driven by government measures put in place in response to the pandemic, including temporary restrictions on the use of statutory demands and certain winding-up petitions, together with enhanced government financial support for companies and individuals.
The fear is that insolvencies may increase significantly once these protections are removed.
Colin Haig, President of insolvency and restructuring trade body R3, said: “It’s a question of when, not if, insolvency numbers further increase this year – especially as the Government’s support packages, which have provided a critical safety net for businesses and individuals, are due to start running out at the end of the first quarter. Even if the Chancellor decides to extend them again, at some point they will have to come to an end.
“Even if the economic impact of the introduction of stricter lockdown measures isn’t as dramatic as it was during the early stages of the pandemic, it will be serious, and businesses will also start to feel the effects of the change in the UK’s relationship with the EU.
“As soon as signs of financial trouble surface, whether in your own or your business’ finances, it’s time to seek advice from a qualified and reputable source. Doing so will allow more options to resolve your situation, and more time to take a considered decision about potential solutions.”
If you would like more information about the issues raised in this article or any aspect of company law please contact Sam on 01228 516634 or click here to send him an email.