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06/12/2021

‘Dramatic’ rise in court action fuelling insolvency concerns
Ric Traynor, executive chairman, said there is ‘real concern’ amongst SME directors about their ability to pay back Government backed bounce back loans with many directors exploring short to medium term insolvency options.

There has been a 139% rise in CCJ’s during Q3 2021 as businesses resort to using the courts to recover debts, according to the latest red flag research for Q3 2021 from Begbies Traynor, which monitors the financial health of UK businesses.

The research also revealed 562,550 businesses in “significant financial distress”, with a 17% rise in “more serious critical business distress” in the past quarter.

According to the firm, CCJ’s are often a “bellwether” for future insolvency and the latest data shows there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021.

The acceleration in CCJ’s was also evident between Q2 and Q3 2021 with a 51% increase.
Begbies Traynor said the latest official figures show that court activity is picking up as creditors become “more aggressive” in chasing debts.
Ric Traynor, executive chairman of Begbies Traynor Group plc, said: “Companies are taking a tougher line to recover debts, as evidenced by the recent rise in insolvency levels. More worrying has been the 44% rise in small business defaults for loans to corporations as published in the BOE’s latest credit conditions survey.
“Firstly, there is real concern amongst many SME directors about their ability to pay back Government backed bounce back loans with many directors exploring short to medium term insolvency options.”
He added: “Secondly many directors say that HMRC is taking an increasingly aggressive line in chasing debts, particularly those who have defaulted on time to pay arrangements and thirdly many businesses are coming under considerable pressure from landlords chasing debts.
“These risks combined with the withdrawal of government support measures and�protection will undoubtedly see an acceleration in insolvency rates into 2022.”

03/12/2021

The government failed to guard properly against fraud in its £47bn Covid emergency lending programme for small businesses, opening itself up to billions of pounds of losses, a watchdog has said.

The bounce-back loan scheme launched in May 2020 and did not include credit checks or fully verify the identity of small businesses applying for loans, the National Audit Office, which scrutinises public-sector spending, said.
“Government prioritised getting bounce-back loans to small businesses quickly but failed to put adequate fraud prevention measures in place,” said Gareth Davies, the NAO’s comptroller and auditor general. “One impact of these decisions is apparent in the high levels of estimated fraud.”

The government launched the scheme at the start of the pandemic to stop the collapse of small businesses.

Firms could borrow up to £50,000 or or a maximum of 25% of annual turnover from accredited banks. About a quarter of UK businesses applied to the scheme, and 1.5m bounce-back loans – which were 100% guaranteed by the government – worth £47bn were made.

In March, Britain’s business ministry, which ran the programme via the British Business Bank, a state lender, estimated that 37% of the loans would not be repaid and that 11% came from fraudulent applications.

A subsequent investigation by the accountancy firm PwC in October revised the fraud rate down to 7.5%, although the NAO said it had not had time to check this estimate itself.

Other countries are also investigating the misuse of emergency loans issued during the pandemic.

Meg Hillier, the Labour chair of the cross-party public accounts committee, said the government had done too little to reduce “colossal risks of fraud and error”.

“It’s now focusing on recovering money from organised crime, yet many of the smaller-scale fraudsters will have slipped through its fingers,” she added.

The business ministry said loans and other support had helped millions of firms avoid laying off staff. “We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences,” a spokesperson said.

22/11/2021

Almost £9m wrongly paid in business support

Almost £9m was wrongly paid out by Stormont's main Covid-19 business support scheme, a public spending watchdog has estimated.
The auditor general examined the Localised Restrictions Support Scheme (LRSS).
Between October 2020 and May 2021 it paid grants to businesses unable to operate due to the pandemic.
It paid out a total of almost £246m, meaning about 96% of grants were correctly paid.
The auditor general estimates that of £8.73m in ineligible payments, an estimated £4.52m related to overpayments identified by the Department of Finance (DoF).
* Stormont seeks to recover millions in Covid grants
* Less than 25% of ineligible Covid grants returned
These overpayments were due to errors such as duplicate payments, payments to business types not eligible for support and payments to businesses that had ceased trading before or during the restriction period.
The DoF now classes almost £2m of this as "doubtful debt" meaning it is unlikely to be paid back.
The remaining £4.21m of ineligible payments relates to estimated error identified by the Northern Ireland Audit Office during its audit testing.
The Auditor General, Kieran Donnelly, said the department had faced "unprecedented and challenging circumstances" in delivering various grant schemes.
"The Department of Finance is not normally a grant paying organisation and I recognise the difficulties faced by staff in making payments during the Covid-19 pandemic," he said.
"The department has confirmed it is currently in the process of developing a lessons learned report covering the various business grant schemes."

09/11/2021

The number of businesses in significant financial distress has jumped by a quarter over the past year to 650,000, according to insolvency specialists.
While businesses have benefited from the ending of lockdown, "constant changes" to the government's road map have left many firms struggling to survive.

The insolvency advisors’ new report finds that there has also been a sharp rise in the number of "zombie" businesses which have taken on unsustainable debt through Covid loan schemes which they cannot repay.

Businesses that took on loans through the Bounce Back and CBILS schemes are now having to make their first repayments, 12 months after taking on debt at the height of the pandemic.
The report provided evidence that businesses which have been protected from insolvency by emergency measures brought in during the pandemic could soon face demands to repay debts.

Official figures show that court activity is picking up as creditors, especially landlords, become more aggressive in chasing debts, Begbies said.
Companies received 14,460 county court judgments during April, May and June - almost double the number lodged in the same period last year.

The government has yet to lay out how it will deal with billions of pounds of debt built up during the pandemic which analysts have warned could hamper the economic recovery.
“Whilst 'Freedom Day' on 19th July has given many businesses a sense or normality, history suggests that unmanageable levels of debts and subsequent overtrading will eventually take their toll on these businesses."

Researchers used a scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including working capital, contingent liabilities and the amount of profits they have retained.
The number of businesses becoming insolvent is likely to increase in the latter months of this year and into 2022.

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08/11/2021

Company insolvency statistics for England and Wales – Q3 2021
It should be noted that unlike monthly insolvency statistics, quarterly statistics are seasonally adjusted to account for seasonal variation in insolvencies across the year and allow for comparison to the most recent period within years.
After seasonal adjustment (where applicable), there were a total of 3,765 company insolvencies in England and Wales in Q3 2021, including:
* 3,471 creditors’ voluntary liquidations (CVLs)
* 105 compulsory liquidations
* 169 administrations
* 20 company voluntary arrangements (CVAs)
* 0 receiverships
Total company insolvencies in Q3 2021 increased by 17 per cent from Q2 2021 and by 43 per cent from the same quarter in the previous year.
While CVL numbers in Q3 2021 were higher than pre-pandemic levels, numbers for other insolvency procedures, such as compulsory liquidations for companies and bankruptcies for individuals, remained lower.
Throughout the COVID-19 pandemic overall numbers of company and individual insolvencies remained low when compared with pre-pandemic levels, likely to be driven in part by government measures that were put in place to support businesses and individuals, such as Corporate Insolvency and Governance Act 2020 (CIGA2020).
Between 26 June 2020 and 30 September 2021, 14 companies obtained a moratorium and nine companies had a restructuring plan registered at Companies House, procedures created by Created by CIGA2020.
From 30 September 2021, some of the temporary government measures have either ended or have been replaced by new tapering measures. The period covered in this publication ended on this date.

Liquidation rate statistics for England and Wales – Q3 2021
In the 12 months ending Q3 2021:
* 1 in 341 companies were liquidated
* the company liquidation rate was 29.3 per 10,000 active companies in England and Wales
* the company liquidation rate was higher than the 12 months ending Q2 2021 but lower than the same quarter a year ago
Unlike the absolute number of liquidations over a period, the liquidation rate indicates the probability of a company entering liquidation in the previous four quarters. In general, periods of economic growth result in liquidation rates decreasing.

Next insolvency statistics release
Figures for Q4 2021 will be released on 28 January 2022.

06/11/2021

03/11/2021

Company insolvencies up 17% in Q2


The increase was driven by a rise in creditors’ voluntary liquidations (CVLs) which reached its peak level since Q2 2009 as the impact of Covid-19 continued to affect businesses.

During the period, July to September, the number of company insolvencies was 17% higher than in Q2 2021 and 43% higher than in Q3 2020, according to the latest national statistics.

The increase was driven by a rise in creditors’ voluntary liquidations (CVLs) which reached its peak level since Q2 2009 as the impact of Covid-19 continued to affect businesses.

The data revealed that one in 341 active companies entered liquidation between 1 October 2020 and 30 September 2021. This was a decrease from the 32.4 per 10,000 active companies that entered liquidation in the 12 months period to 30 September 2020.

During Q3 2021, there were also 3,765 (seasonally adjusted) registered company insolvencies,, comprising 3,471 CVLs, 105 compulsory liquidations, 169 administrations, and 20 company voluntary arrangements (CVAs).

Blair Milne, restructuring and insolvency partner at Azets, said: “The biggest increase can be seen in Creditors’ Voluntary Liquidations, where directors have sought to place their business into an insolvency process.

“Many businesses have yet to see a return to pre-pandemic levels of activity and are now having to navigate a myriad of challenges including rising inflationary costs, particularly utility charges, supply chain disruption, increasing labour and material costs and chronic staff shortages.”

29/10/2021

Insolvency set to rise as creditors go to the courts

A sharp rise in creditors using court action to recover debts has fuelled fears of a jump in insolvencies.

The number of county court judgments lodged against companies in the three months to the end of September was 21,764, a rise of 51 per cent on the previous quarter.
Begbies Traynor, the restructuring firm, warned that the latest figure painted a “gloomy picture” for future insolvencies.

In the third quarter, 155 companies fell into administration or receivership, a 26 per cent rise on the previous quarter, according to Interpath Advisory, another restructuring firm. The construction and energy sectors suffered the biggest rises in receiverships, as global supply chain challenges and rising inflation took their toll.

Begbies Traynor found that 562,550 companies faced county court judgments of less than £5,000 in the third quarter, down 14 per cent on the previous quarter.

The number of critically distressed businesses with county court judgments of more than £5,000 filed against them rose by 17 per cent to 1,668 over the same period.

Ric Traynor, executive chairman of Begbies Traynor, said he was “concerned that trading conditions will deteriorate for many companies as supply chain issues affect output and input costs continue their upward trajectory”.

Begbies Traynor has found there is a real concern among many directors of small and medium-sized companies about their ability to pay back government bounce back loans, which let them borrow a maximum of 25 per cent of their turnover up to £50,000.

Directors have reported that HM Revenue & Customs is “taking an increasingly aggressive line in chasing debts, particularly those who have defaulted on time-to-pay arrangements”.

Blair Nimmo, chief executive of Interpath, said that the sectors facing higher activity included general manufacturing, automotive and aerospace supply chains. “Against a backdrop of rising inflation costs and lessening government support, there are signs that the level of insolvencies are beginning to rise.”

He warned that the construction sector was “on the brink of a perfect storm . . . Raw material costs remain at high levels, with steel, timber and plastic products nearly 50 per cent higher than they were pre-April 2020.”

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27/10/2021

UK government prepares for end of temporary insolvency measures

The UK government has introduced legislation designed to support small businesses ahead of the end of restrictions on winding up petitions on 30 September 2021.
The government introduced the Corporate Insolvency and Governance Act 2020 (CIGA) in June 2020, restricting creditors from serving statutory demands and presenting winding up petitions for debts related to coronavirus. The restrictions were originally in place to 30 September 2020, but were repeatedly extended to a final date of 30 September 2021.

Ahead of the restrictions finally coming to an end, the government has introduced the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021. The regulations are aimed at giving smaller companies more time to trade before creditors can take action to wind them up.

Although there will no longer be restrictions on presenting statutory demands, as under CIGA, from 1 October 2021 until 31 March 2022, the threshold for presenting a winding up petition will be increased from £750 to £10,000. It will be possible for more than one creditor with a total aggregate debt of £10,000 or more to present a winding up petition.

Creditors must write to a company asking them to put forward their proposals for repaying a debt within 21 days. If the company does not put forward proposals to the creditor’s satisfaction, then the creditor can present a winding up petition.

A creditor can apply to court for permission not to write to a company or to give a company less than 21 days to put forward repayment proposals.

The winding up petition must contain a statement confirming that the regulations have been complied with.

However, the regulations do not amend the sections of the Insolvency Act 1986 dealing with the disposition of property between the presentation of a winding up petition and the date of the winding up order. This means that from 1 October 2021, banks will be likely to consider freezing company bank accounts on learning of a winding up position.

The provisions suspending liability for wrongful trading expired on 30 June 2021, giving creditors comfort from the fact that directors should only continue to trade providing that they are not worsening the financial position of the company

Insolvency law expert Joanne Gillies of Pinsent Masons, the law firm behind Out-Law, said: “It will be interesting to see how the courts deal with the requirement that creditors must give debtors a further 21 days for repayment proposals before they can present a winding up petition.

“Particularly if there is evidence of assets being dissipated, a creditor may not be in a position to wait 21 days for the debtor’s proposals, and a provisional liquidator appointment will be required immediately,” Gillies said.

“Helpfully, judges have discretion to waive this condition but it remains to be seen what criteria they apply when deciding whether to do so,” Gillies said.

The regulations also affect commercial landlords, who have been effectively stripped of powers to take action if rent has not been paid through the pandemic.

In England, commercial landlords are currently prevented from forfeiting leases owing to non-payment of rent and are restricted from exercising commercial rent arrears recovery until 25 March 2022. In Scotland, the irritancy notice period under commercial leases is extended to 14 weeks until 31 March 2022.

The regulations prevent a landlord from presenting a winding up petition in respect of “rent or any sum or other payment that a tenant is liable to pay” under a business tenancy and which is unpaid by reason of a financial effect of coronavirus until 31 March 2022.

In June, the government announced that it is planning to legislate to ringfence Covid-related rent arrears that have accrued as a result of trading restrictions being placed on businesses and to introduce a system of binding arbitration for landlords and tenants who cannot come to a negotiated settlement in terms of payment.

25/10/2021

22/10/2021

UK government prepares for end of temporary insolvency measures

The UK government has introduced legislation designed to support small businesses ahead of the end of restrictions on winding up petitions on 30 September 2021.
The government introduced the Corporate Insolvency and Governance Act 2020 (CIGA) in June 2020, restricting creditors from serving statutory demands and presenting winding up petitions for debts related to coronavirus. The restrictions were originally in place to 30 September 2020, but were repeatedly extended to a final date of 30 September 2021.

Ahead of the restrictions finally coming to an end, the government has introduced the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021. The regulations are aimed at giving smaller companies more time to trade before creditors can take action to wind them up.

Although there will no longer be restrictions on presenting statutory demands, as under CIGA, from 1 October 2021 until 31 March 2022, the threshold for presenting a winding up petition will be increased from £750 to £10,000. It will be possible for more than one creditor with a total aggregate debt of £10,000 or more to present a winding up petition.

Creditors must write to a company asking them to put forward their proposals for repaying a debt within 21 days. If the company does not put forward proposals to the creditor’s satisfaction, then the creditor can present a winding up petition.

A creditor can apply to court for permission not to write to a company or to give a company less than 21 days to put forward repayment proposals.

The winding up petition must contain a statement confirming that the regulations have been complied with.

However, the regulations do not amend the sections of the Insolvency Act 1986 dealing with the disposition of property between the presentation of a winding up petition and the date of the winding up order. This means that from 1 October 2021, banks will be likely to consider freezing company bank accounts on learning of a winding up position.

The provisions suspending liability for wrongful trading expired on 30 June 2021, giving creditors comfort from the fact that directors should only continue to trade providing that they are not worsening the financial position of the company

Insolvency law expert Joanne Gillies of Pinsent Masons, the law firm behind Out-Law, said: “It will be interesting to see how the courts deal with the requirement that creditors must give debtors a further 21 days for repayment proposals before they can present a winding up petition.

“Particularly if there is evidence of assets being dissipated, a creditor may not be in a position to wait 21 days for the debtor’s proposals, and a provisional liquidator appointment will be required immediately,” Gillies said.

“Helpfully, judges have discretion to waive this condition but it remains to be seen what criteria they apply when deciding whether to do so,” Gillies said.

The regulations also affect commercial landlords, who have been effectively stripped of powers to take action if rent has not been paid through the pandemic.

In England, commercial landlords are currently prevented from forfeiting leases owing to non-payment of rent and are restricted from exercising commercial rent arrears recovery until 25 March 2022. In Scotland, the irritancy notice period under commercial leases is extended to 14 weeks until 31 March 2022.

The regulations prevent a landlord from presenting a winding up petition in respect of “rent or any sum or other payment that a tenant is liable to pay” under a business tenancy and which is unpaid by reason of a financial effect of coronavirus until 31 March 2022.

In June, the government announced that it is planning to legislate to ringfence Covid-related rent arrears that have accrued as a result of trading restrictions being placed on businesses and to introduce a system of binding arbitration for landlords and tenants who cannot come to a negotiated settlement in terms of payment.

21/10/2021