Businesses should not wait for creditor action to land on the doorstep, says UK’s largest accountancy firm for SMEs
Kerry Pearson, Restructuring and Insolvency Partner at Azets, the UK’s largest regional accountancy and business advisors to SMEs, comments on the May 2021 corporate and personal insolvency statistics for England and Wales.
Corporate insolvencies
Kerry Pearson said, “The figures released today for May 2021 show a slight increase in corporate insolvencies compared to the previous month but continue to show a trend of low corporate insolvencies compared to pre-pandemic levels. This is likely attributable to the continuing Government support that was put in place during the pandemic to support businesses, as well as the temporary restrictions on the use of certain creditor enforcement actions.
“One of these temporary restrictions, namely the use of a winding up procedure, is due to end on 30 June 2021 which, if not pushed back again, is likely to see a sharp rise in corporate insolvencies in the coming months as creditors will be able to enforce their rights again. The end of the furlough scheme is also due at the end of September 2021, which will put further cash flow pressure on some companies in the region and will likely increase insolvencies in the last quarter of 2021 and the start of 2022.
“North East businesses should not wait for creditor action to land on the doorstep and now is the time for management to consider if future cash flow will be an issue. They need to consider whether their business model is sustainable, and that any extra debt taken on during the pandemic can be serviced. With this in mind, business owners should seek appropriate expert advice at the earliest opportunity from a regulated restructuring professional. Most restructuring firms offer a free initial consultation and this should be taken advantage of to ensure the best chance of survival.”
Personal insolvencies
Kerry Pearson, added, “The total number of court-led personal insolvencies are almost a mirror image of the numbers in May 2020. However, when you drill down into the details, there are interesting shifts in who is initiating the court process. The number of people choosing to go bankrupt has fallen from 690 to 647 but the number of creditors forcing individuals into bankruptcy (creditors petitions) has risen by almost 40% from 51 to 71. The court is only hearing urgent or contentious creditors petitions and so this is an interesting increase as it means creditors are perhaps now taking action against the worst offenders.
“The most dramatic drop is in the number of people choosing to enter into Individual Voluntary Arrangements which has dropped from 11570 a year ago to 6239. This again means that individuals are choosing not to enter into debt arrangements which may be because creditors are still offering Covid relief where the borrowing is genuine and therefore these individuals are managing to organise their own debt management arrangements for now at least.
“The Bank of England consumer credit statistics show that consumer credit growth is increasing this year, meaning we are borrowing more and the repayment of credit card debt has slowed. This may mean that while we are borrowing more we are relying on self-made repayment plans to try and manage our finances more.