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Increase In Voluntary Liquidations Behind Sharp Month-On-Month Rise In Corporate Insolvencies


Jul 26, 2021 #Finance, #Law

The delay in the expected removal of all social distancing and lockdown restrictions in June may have been the tipping point for many owners of struggling businesses, according to the North East chair of insolvency and restructuring trade body R3.

Alexandra Withers was speaking after the latest corporate insolvency figures for England and Wales revealed a 19% month-on-month rise, from 1,014 cases in May this year to 1,207 last month.

The new figure also represents a 62% year-on-year rise from the 741 cases in June 2020.

The month-on-month increase in corporate insolvencies, which represents the third highest monthly figure since the pandemic started, has been driven by a rise in Creditors’ Voluntary Liquidations (CVLs), which happen when shareholders choose to put a company into liquidation because it is insolvent.

A CVL usually happens at the company directors’ request because it either can’t pay its debts as they fall due or it has more liabilities than assets.

Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, is now advising regional business owners who think they might be approaching this position to get qualified advice as quickly as possible to give themselves the best chance of finding a sustainable way forward for their companies.

She says: “The Government’s decision to delay lifting the final pandemic restrictions for another month was clearly a further blow to the business community and may have been particularly unhelpful for the hospitality and retail sectors, which have been hit hardest by trading restrictions and lockdowns.

“It may be that this impact has been reflected in the statistics as the rise in CVLs, used by directors to voluntarily close a company, suggests that for many directors the delay to the removal of the restrictions may have simply made it uneconomic to continue trading.

“However, we were heartened by the Business Secretary’s recent comments on HMRC’s planned approach to working with distressed businesses, which we believe needs to be a priority for all parties.

“In particular, the news that HMRC will take a supportive approach to rescue proposals from viable businesses is welcome, and we hope will support the profession’s efforts to support Covid-hit firms.

“Anyone who is concerned about their business finances should seek proactively advice from a qualified source as soon as possible. Taking the initiative, rather than avoiding the issue, will mean you have more options open and more time to consider your next step.”