When the coronavirus swept the world, governments and businesses were left scratching their heads, wondering how exactly they were supposed to deal with it. A virus of this scale had not been seen in over a century and as such, knowing what the next steps should be certainly were difficult to get hold of. Organisations began to wonder how they were ever going to keep their business afloat through such economic hardships, whilst individuals wondered how they would fare through elongated periods of isolation.
What Did the Government Do?
The government became aware as the virus gradually grew worse and worse that they needed to step in in order to help businesses. Many organisations were able to utilise technology and the cloud and continue running their organisation from the comfort of their own home. Many other businesses could not do this, and all trading had to cease immediately. Companies were naturally not going to be able to survive off such little income. Subsequently, plans were put in place in order to help businesses navigate through such unprecedented times.
One of the measures that were put in place was the furlough scheme, which made it so that businesses could receive help with paying their staff rather than making those staff redundant. With this, the government paid 80% of the business’s wages, meaning the business itself only had to make up the remaining 20%. A lot of employees agreed to take minor pay cuts throughout the pandemic so that organisations didn’t even need to contribute 20%; this was to ensure the business survived such an unprecedented period without too much financial hardship.
There were also changes made to when liquidation proceedings could be enforced on a business as the amount that organisations owed to creditors was increased to £10,000. This is because it became clear that some organisations were going to incur debt as they made their way through the pandemic, and given the extenuating circumstances, it didn’t seem fair that they should be forced to go into liquidation when such debt was incurred.
Insolvency Statistics for 2020
The corporate insolvency statistics that were published for the year 2020 showed just how much of a massive impact these measures had. The stats showed the insolvencies throughout the year were lower than insolvencies in 2019 and 2018. This is certainly the result of the various measures put in place by the government, like furlough and extending the amount needed before a business can be forced to liquidate.
The 2020 stats show that:
- Corporate insolvencies:
The corporate insolvencies that took place throughout 2020 consisted of:
- 586 creditors voluntary liquidations (otherwise known as CVLs)
- 110 administrations
- 66 compulsory liquidations (these are predictably low)
- 15 company voluntary arrangements (CVAs)
- 1 Receivership appointment
The individual insolvencies consist of:
- 1332 debt relief orders (otherwise known as DROs)
- 769 bankruptcies:
- 708 debtor bankruptcies
- 61 creditor bankruptcies
- 4885 individual voluntary arrangements (otherwise known as IVAs).
These stats are significantly lower than those seen in previous years, which clearly reflects how many organisations decided to opt for the government’s help throughout the pandemic. With these measures in place, organisations had a large safety net below them. Of course, at some point, as vaccines were manufactured and restrictions and measures were brought to an end, that safety net had to be taken away.
Increase in Corporate Insolvencies
The majority of the measures put in place throughout the pandemic came to an end in September 2021. This subsequently meant that organisations had to begin paying their staff in full once again and the debt incurred before insolvency went back to normal levels. The only measure that continued following September surrounded the winding up of companies, but even that reverted back to normal in March 2022.
The removal of covid measures has led to a record number of corporate insolvencies. These are at their highest peak since records began all the way back in 1960. It is not surprising, given that even though measures have been removed and restrictions have dropped, we still find ourselves in a serious state of economic hardship as the buying habits of consumers have changed and energy bills and the cost of living continue to rise too.
Banks have started to ask for repayments on different loans that were made and backed by the government, and a lot of businesses simply aren’t in a strong enough financial position to pay them back.
How Much Did the Number of Insolvencies Rise By?
Keeping in mind that the number of insolvencies in 2020 was below average, the total number in 2022 was 51% higher. A large number of these organisations were small businesses which only goes to remind us how much of a disadvantage smaller businesses have when it comes to times of economic hardship. For this reason, these businesses should be sure to seek financial help as and when they need it so they can explore the options available to them.
It’s also interesting to note that most of this record-breaking number of corporate insolvencies were voluntary, meaning directors instigated proceedings themselves. The increased number of insolvencies is a reflection of the fact it is a tough time for businesses, and the majority of insolvencies that are voluntary is a reflection of business owners’ mindset to economic prospects on the horizon.
Is Your Business Struggling Financially?
If you are one of the businesses that find themselves in the position outlined above and you are currently struggling financially as a result of the pandemic, cost of living crisis and government measures coming to an end, then you might want to enlist the help of an organisation such as Simple Liquidation. We will be able to sit down with you and understand the current state of your business; in doing so, we can advise you on what the best ways forward are. If you have any questions or want more information on how we can help, please do not hesitate to get in touch.
