Home Finance & Investments Insolvencies rise as distressed firms choose to shut down voluntarily

Insolvencies rise as distressed firms choose to shut down voluntarily

Allan Cadman, North West chair of R3

The number of business failures rose by 9% in May compared to the previous month and by 7% compared to May last year, according to the latest official figures.

With a ban on winding up orders still in place, the rise has been driven by an increase in the number of distressed companies choosing to close down voluntarily, according to an analysis by the insolvency and restructuring trade body R3.

The figures released today by the government’s Insolvency Service show that 1,011 company insolvencies were recorded in May. Of these, 930 were Creditors’ Voluntary Liquidations (CVLs) – a procedure where directors of an insolvent company decide to liquidate the business because there is no prospect of rescue.

Allan Cadman, North West chair of R3, says: “While it’s too early to say whether the mild increase in corporate insolvency numbers is the start of something bigger, times remain tough for businesses in the UK.

“Government support has held off rather than halted the economic damage of the pandemic, preventing a serious rise in insolvency levels, but many business owners are now having to look ahead to how they’ll cope when these measures are withdrawn in the weeks and months ahead.

“Looking to the future, businesses are more confident about their ability to grow, but many are, quite rightly, still concerned about the continued effect of Covid restrictions. Business owners in some sectors will be feeling increasing concern at the prospect of another delay to the easing of lockdown in England.

“And although the economy continues to grow, there’s still a lot of ground to make up to recover from the unprecedented economic contraction in April 2020. Consumer spending has increased, but it’s still below 2019 levels, and while consumer confidence is improving, people are still worried about the future of the economy.”

Allan, who is also a partner at insolvency firm Poppleton & Appleby, added: “The temporary ban on winding-up petitions is due to finish at the end of June, and other Government support schemes are due to be withdrawn in the next few months, which will clearly increase pressure on struggling firms.

“Company directors need to plan how they will manage without state support. Businesses which are struggling should seek professional help.”

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