​Insolvency Situation may have just landed in the Social Conscience

Listening to a phone-in on Radio 5 this morning, it was apparent that something playing on my mind is now moving more generally into the social conscience. Brexit, COVID and the war in Ukraine have dominated the headlines, but behind the scenes, with Government support ending, it has for a while been clear to me and anyone involved in the Insolvency sector that the problems bubbling away this past few months were about to come to the boil.

At 7.00am this morning Begbies Traynor released their Red Flag Alert for Q1 this year. Outside of Northern Ireland, for the rest of the UK where the Bankruptcy Courts have already re-opened to “new business”, the report points to the commencement of what has been coming down the tracks this past two years. As one commentator has put it “Critical corporate financial distress levels jump as the economy faces post-pandemic reality”. Notably, the Red Flag report from Begbies Traynor reports the following:

• Concerns as the number of companies in critical financial distress increased to 1,891 in the first quarter of 2022, almost a fifth higher than the same period last year
• The 19% year-on-year increase has been driven by a 51% jump in the construction sector and a 42% rise among bars and restaurants
• Businesses in significant financial distress are down 20% on the level a year ago at 581,596, though this is flat on the previous quarter
• County Court Judgements - a warning sign of future insolvencies - up 157% to 22,552 in the quarter compared with a year ago; with March having seen the highest number in a single month for five years
• Data from the "Red Flag Alert" points to a coming wave of business failures as the economy adjusts to the post-pandemic reality with Covid reliefs cut off and rapid growth in inflation.

The latest Begbies Traynor "Red Flag Alert" research, which has examined the financial health of British companies for the past 15 years, highlights the strain two years of extraordinary financial pressures have had on thousands of UK companies. Helped through the pandemic and its aftershocks by state support, the report now reveals a 19% jump in the number of companies in critical financial distress with these measures cut off and costs spiralling.

The most recent County Court Judgements (CCJs) data revealed 11,673 rulings in March - up 179% on the monthly average for the previous two years - and the highest level in a single month for five years. With companies struggling with rising inflation, coupled with the demands of repaying Government Covid support loans, there is now a growing risk of a wave of insolvencies affecting vulnerable British businesses. The latest Government insolvency figures for March reinforce this worrying trend with creditors voluntary liquidations - the most common type of corporate insolvency - more than doubling compared to March 2021 and up 62% compared to March 2019.

These statistics seem to point to a wave of insolvencies coming. In the rest of the UK, it has already started. In Northern Ireland, two things appear to be temporarily holding this back. The Bankruptcy Court remains closed to new business i.e. the presentation of new Bankruptcy and Winding Up Petitions by creditors is halted through court issued Guidance and furthermore, it is apparent that, at present, the Insolvency Service barely have the capacity to handle their existing pre-pandemic caseload and backlogs, never mind having to deal with a deluge of new court-ordered insolvencies.

The tradition with the Bankruptcy Courts in Northern Ireland has been that new Petitions issued in May and June in any given year were listed after the summer recess in September at the start of the new court term. Might it be too much to suppose that at the start of the new court term in September 2022 new Petitions will be allowed and the logjam will finally unclog bringing with it all associated consequences?

If you are a business whose cash flow is being impeded through an inability to encourage your debtors to pay monies long overdue or if you find yourself unable to meet your ongoing business debts, please contact Darren Toombs or another member of our Insolvency & Restructuring team.