England, Wales report 42% fewer company insolvencies in October
England and Wales saw 42% less company insolvencies in October 2020 compared to last year. There were 856 company insolvencies in October 2020 including 672 creditors’ voluntary liquidations (CVLs), 59 compulsory liquidations, 104 administrations and 21 company voluntary arrangements (CVAs). There were no receivership appointments reported during the month.
The drop in number of company insolvencies was primarily driven by a decrease in the numbers of CVLs and compulsory liquidations which fell by 36% and 76% respectively. The number of companies entering administration in September 2020 also fell when compared to the same month last year by 35%. CVAs fell by 42% in October 2020 in comparison to the same period last year in England and Wales.
A creditor’s voluntary liquidation is an insolvency process, where the directors of an insolvent company voluntarily chose to wind up the company. Compulsory liquidation, on the other hand, is started by creditors of a company through a court order called Winding Up Petition. An administration is an insolvency procedure where management of a company unable to pay debt is replaced by an insolvency practitioner whose ties to revive the company. Under a company voluntary arrangement, a company enters into an arrangement with the creditor to settle the debt by paying a portion of it. An appointment of receivership means an individual is appointed by the creditor to sell the assets of the company and recover the unpaid debt.
According to a UK government statement, the overall reduction in company insolvencies was likely to be in part driven by the range of government initiatives put in place to financially support companies in response to the coronavirus (COVID 19) pandemic.
The government had also announced in late April that it would temporarily prohibit the use of statutory demands and certain winding-up petitions from 27 April to 30 June 2020 under the Corporate Insolvency and Governance Act 2020. This was later extended to 30 September, and again further extended to 31 December 2020.
Between the 26 June and 31 October 2020, two companies obtained a moratorium and one company had a restructuring plan sanctioned by the court. These two new procedures were created by the Corporate Insolvency and Governance Act 2020. The low number of cases of each of these new legislative tools since the Act came into force is likely to be as a result of the range of Government support provided to companies as mentioned above, including the range of temporary measures that have recently been extended for a further period.
Meanwhile, there were 1,572 Debt Relief Orders (DROs) and 1,048 bankruptcies in England and Wales in October 2020. There was a 37% reduction in DROs and a 25% reduction in bankruptcies in October 2020, compared with the same month last year. The reduction in bankruptcies was driven by a 17% fall in debtor applications and a 67% reduction in creditor petitions.
A DRO is a way to get a company’s debt written off if it has low debt and have some assets.
