3 Mins
The government has been providing monthly insolvency statistics since early on in the pandemic. As an Insolvency Practitioner, I’m interested to see what the trends are. As an accountant, I also get excited about numbers. The most recent set of results to May 2022 has recently been released and I thought I’d share what they show.
The number of insolvencies in any given period tends to have a link to how the economy is performing in that period. The insolvency trend will tend to lag economic performance, but generally, when the economy is buoyant the number of insolvencies is lower than in a recession. Ignoring the last week or so of March 2020 when lockdown hit, the 12 months to 31st March 2020 is the first pre-pandemic year of monthly comparatives. There were 995 corporate insolvencies in Scotland in that 12-month period and 967 in the prior 12 months. Both are fairly benign economic periods and so we will assume 995 for an average number of corporate insolvencies in Scotland in any one year. That’s 83 a month on average.
Lockdown started just before the end of March 2020 and impacted all sectors. Many companies were unable to trade and were suffering from acute financial difficulties. Government initiatives were introduced and businesses received cash which allowed them to continue to meet costs in the absence of trade. Restrictions were put on what actions creditors could take to pursue monies due to them. As the pandemic continued, various lockdowns and restrictions came and went and government initiatives remained. In the 12 months to 31st March 2021, the number of insolvencies was 505, about 50% of the assumed average yearly amount above. This reduction is attributed to the government initiatives being very successful in preventing companies from entering into insolvency.
The initiatives were slowly phased out over the next 12 months to March 2022 and the number of insolvencies increased 72% year on year. This sounds massive, but remember that 2021 was 50% down on the prior year and the absolute number of insolvencies was still significantly below the average at 871 a year which is 72 a month. The most recent figures show April and May 2022 trending higher at 92 a month. One of the reasons for the recent increase is likely to do with the fact that creditors can now petition for the appointment of a liquidator without any restrictions. We are also aware that since the start of April HMRC are regularly taking steps to appoint a liquidator which was only being done in exceptional circumstances since March 2020. Given that there is still a shortfall over the last two years of the average number of insolvencies that we would expect in a neutral economic period, we expect to see this increased number of insolvencies continue for a sustained period. Even more so with the economic headwinds that some businesses are facing at the moment and potential UK recession later this year.
The statistics also provide sector information. In the 12 months to March 2020, 425 of the 995 company insolvencies had either a construction or hospitality-related SIC code. That is 2 in every 5 insolvencies in a “normal “period. It was less than 1 in every 5 in the following 12 months. This means that not only was the number of insolvencies 50% lower than would be expected, but the proportion of construction and hospitality companies that make up that number was a further 50% lower than expected. The more recent figures are back in line with the pre-pandemic figures, but it suggests that we should expect to see a higher proportion of these types of companies entering insolvency in the future. And that is before we take into account the specific challenges that those industries are facing at the moment.
Get in touch
