A record number of companies went into voluntary insolvency in England and Wales at the end of last year after the expiry of government support for businesses hit by Covid-19 economic restrictions, according to official data.
The Insolvency Service on Friday revealed that there were 4,175 creditors voluntary liquidations – where directors choose to place the business into liquidation without a formal court order – in the fourth quarter of 2021.
This was the highest quarterly number of insolvencies since records began in 1960, the government agency said, and coincided with “the phasing out of measures put in place to support businesses during the coronavirus pandemic”.
The data show how the pandemic has been particularly difficult for small companies that have lacked the resources to survive successive lockdown measures. Creditors voluntary liquidations are often used by smaller businesses that are unable to pay their debts.
The overall number of company insolvencies between October and December in 2021 was almost a fifth higher than in the previous quarter and 51 per cent higher than the same quarter in 2020.
The numbers for other company insolvency procedures were higher than the previous quarter earlier in autumn but remained low compared with pre-pandemic levels.
Insolvency experts had predicted a sharp rise in company failures after the government’s furlough scheme ended on September 30, exacerbated by banks starting to ask for repayment on loans made during the pandemic that were backed by government guarantees.
Company insolvencies were also kept at a very low level during the health crisis as a result of temporary restrictions placed on the use of statutory demands and certain winding-up petitions, alongside government financial support.
Samantha Keen, UK turnround and restructuring strategy partner at the consultancy EY, said the increase in companies failing was unsurprising given most of the temporary Treasury payments had ended and difficult trading conditions at the end of 2021.
“The rise in the number of CVLs which accounted for 90 per cent of all company insolvencies in 2021 is, sadly, a reminder that smaller companies are more vulnerable to headwinds,” she said.
“Many small businesses had been insulated by the true impact of the pandemic by government support measures, but the end of the furlough, in particular, left many having to make difficult decisions about their long-term future.”
Colin Haig, president of insolvency trade body R3, said the rise suggested many directors “are opting to close their businesses as they lack confidence in their trading prospects in the current climate”.
Keen said the wave of Omicron coronavirus variant infections that swept through England and Wales in December had a significant impact on businesses, particularly those within the hospitality sector.
Hospitality groups “suffered reduced trade due to cancellations, labor shortages and lower high-street footfall over the critical festive period, which many rely on to see them through the off season”, she noted.
Keen predicted that the recent uptick in voluntary insolvencies would be “just the first wave” and that “further waves” were expected among larger businesses as the significant stresses that had built up at the end of 2021 continue into 2022, with more pressures on profit margins and consumer disposable incomes.