R3 Southern and Thames Valley responds to July 2022 insolvency statistics

STATS: Mike Pavitt, who is immediate past chair of R3’s Southern and Thames Valley region and is a partner and head of corporate restructuring and insolvency at Paris Smith LLP solicitors.

SOUTHERN AND THAMES VALLEY: Mike Pavitt, who is immediate past chair of R3’s Southern and Thames Valley region and a partner and head of corporate restructuring and insolvency at Paris Smith LLP solicitors, has responded to latest insolvency statistics.

Corporate insolvencies have shot up by more than two thirds compared to last year and are at their highest level in three months, says R3, the trade body for restructuring and insolvency professionals in the South and Thames Valley.

The sharp increase from July 2021 to 2022 in England and Wales came as more company directors closed the doors, presumably in the belief that their companies’ continued survival was either impossible or improbable.

R3’s analysis of the latest statistics from The Insolvency Service shows that:

  • Corporate insolvencies increased by 7.5% in July 2022 to a total of 1,827 compared to June’s total of 1,699. They increased by 66.7% compared to July 2021’s figure of 1,096.
  • Individual insolvencies, meanwhile, fell by 12.7% to 9,190 in July 2022 compared to 10,527 in June, but were higher than July last year, and IVA numbers in particular remain high.

Mike Pavitt, immediate past chair of R3’s Southern and Thames Valley region, said: “In recent months, as we all know only too well, economic pressures have been hitting business from every angle.

“The increase in corporate insolvencies in July was driven by a rise in Creditors’ Voluntary Liquidations (CVLs), which were 59.9% higher than for the same time last year and 60.1% higher than pre-pandemic levels in 2019.

“This suggests that a growing number of company directors are choosing to close their businesses, perhaps having concluded that current economic conditions make the company’s long-term survival impossible.

“On one view, this is not a surprising development. We know that government policies during the pandemic created what many call the ‘Insolvency Gap’, where businesses who would have entered a formal insolvency procedure earlier were delayed from doing so by freely available financial support and/or the removal of the usual triggers for insolvency in terms of creditor enforcement and/or pressure from HMRC.

“Things have been getting back to ‘normal’ in this respect in 2022, and some of the numbers we are seeing today are the continued result of that adjustment. Even so, there is more to it than this.

“For our part, we have certainly seen an uptick in new enquiries, many from well-established companies finding it more difficult than anticipated to clear government-backed loans taken out during the pandemic, and/or facing claims and litigation, tax obligations and/or inflationary pressures which they have not been able to mitigate as successfully as they expected.

“Others have simply grown tired of swimming against the tide for so long.”

On the personal insolvency side, the slight month-on-month fall was helped by a fall in Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), although the three-month average trend for IVAs is still up, and the month on month bankruptcy numbers actually increased by 7.9%.

Mike, who is a partner and head of corporate restructuring and insolvency at Paris Smith LLP solicitors, said: “Clearly things are only set to get tougher over the coming months, even allowing for the likelihood of further action by government to soften some of the blows.

“Even so, it is by no means all doom and gloom. Businesses must of course take such pressures seriously and adapt their approach accordingly but many of the directors we are talking to are just being prudent, planning for the worst even whilst hoping for the best.

“This is good business practice and will serve to protect boards from personal exposure over the long-term.

“By taking early action and seeking help from a qualified and regulated professional at the first sign of financial distress on the horizon, you will have more options available than if you had waited for the problems to worsen and will have a greater chance of finding a positive resolution to your concerns.

“Experience shows that an introduction to a suitably qualified insolvency practitioner accountant today may well result in reassurance, particularly if there is disagreement between the directors as to how to handle these pressures.

“Sitting down with an IP may reveal options they had not previously considered, allowing them to chart a safer course to calmer waters beyond.”

Most R3 members will offer a free initial consultation to help business owners better understand their position and outline the potential options available should issues arise.