COVID-19: Increase in Insolvencies Expected

Insolvency practitioners have warned that given the expected tapering off government support to companies affected by COVID-19 and the lockdown (which is due to begin in autumn) it is expected that there will be an increase in the number of insolvencies.

The rules surrounding insolvency are technical and it is unlikely that a someone not versed in personal insolvency laws will achieve a successful outcome. Winding up particularly and insolvency in general is a niche practice area – indeed many solicitors in general practice will rarely have experience in this discipline.

Do not underestimate the severe consequences that winding up a company entails. It is likely that seeking the advice of a specialist insolvency lawyer will be of far more benefit to you than ignoring impending proceedings or seeking to conduct the litigation yourself as a layman.

How have insolvencies been affected by COVID-19?

Since the beginning of lockdown on 23 March 2020, and since 23 April 2020 when Business Secretary Alok Sharma announced the Government’s intention to suspend winding-up petitions and statutory demands there has been an evident reduction in the number of winding-up petitions issued. Statistics from the Insolvency Service show that for April, May and June the number of insolvencies went down respectively by 17%, 30% and 50% compared to the same months in 2019.

Compulsory liquidation requiring a winding-up petition has reduced by as much as 88% compared to the same period last year.

However, it is expected that the fall in insolvencies will not be sustained and will only lead to a significant increase in the final quarter later on in the year.

Increase in insolvencies expected in late 2020

A survey published by R3 earlier this month found that 93.7% of practitioners expect a higher number of insolvencies in the next 12 months, with 56.1% predicting the number would be significantly higher.

There have been other discussions suggesting that although it is likely there will be an increase in insolvencies following the end of government support in the autumn, that the peak won’t be ruinous to the economy.

“Do I see an acceleration of insolvencies and closures in the last quarter, Yes I do. Will it be Armageddon? I don’t think so. Well-managed businesses that were perfectly viable pre-coronavirus will survive. It will be difficult and many companies’ trade performance will be materially poorer. But a combination of good management, support from stakeholders and help from government schemes will help.”

Blair Nimmo, Global Head of Insolvency at KPMG

The temporary suspension is due to last until 30 September 2020, which means that courts will not hear most creditor petitions and statutory demands until 1 October 2020 at the very earliest.

Expected increase in winding up petitions presented by landlords

It is expected that the majority of winding up petitions come October 2020 will arise between landlords and tenants, as many commercial retailers who rent property have struggled to pay their rent through the pandemic.

May rents have been deferred and if there is no instalment plan in place come September 2020, there will be three quarters of rent left outstanding.

Many creditors are not waiting for the end of the suspension period and have begun renegotiating contracts and terms of payment. This is believed to be a more amicable solution given the uncertain economic outcome.

Facing a winding up petition? Need Legal Advice?

If your company is concerned about a winding-up petition or statutory demand from a creditor your company can potentially challenge that petition. For further details on how a company can obtain an injunction to restrain presentation of a winding-up petition, see our page here.

As a leading law firm with a track record of success, you can be assured that your matter is in safe hands. Our success rate is a result of the dedication of our lawyers who will diligently review your matter so it has the best possible chance of success from the outset when it matters the most.

Specialist London Winding-up Petition Lawyers

We’re masters of insolvency dispute litigation. We are a specialist City of London law firm made up of Solicitors & Barristers. We’re based in the Middle Temple Inns of Court (next to the Royal Courts of Justice where the High Court and Central London County Courts are based).  We’re experts in dealing with matters surrounding insolvency in particular our team have unparalleled experience at both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529.

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