Date21 Jul 2022
CategoryRestructuring & Insolvency
The new restructuring procedures introduced under the Corporate Insolvency and Governance Act 2020 (CIGA 2020) can present much better outcomes for businesses struggling to meet financial repayments amid a growing number of liquidations.
Government insolvency statistics published over the past five months show liquidations peaking and almost no company voluntary arrangements (CVAs) – and very few administrations. This is not good as liquidations are an end-of-life process.
Most at-risk are businesses that are extensively geared or have fixed rate deals coming to an end, with protective covid measures being withdrawn coupled with the increased cost-of-living and ongoing supply chain issues slowing economic recovery. It’s also apparent the investor community is becoming more cautious.
Insolvency statistics for June 2022 show 1,691 registered company insolvencies, 40% higher than June 2021 (1,207) and 15% higher than pre-pandemic levels (1,467 in June 2019).
There were 1,456 Creditors’ Voluntary Liquidations (CVLs), 30% higher than in June 2021 and 44% higher than June 2019. There were 3.6 times as many compulsory liquidations in June 2022 as in June 2021.
Companies on LIBOR plus interest rates have been immediately impacted by the Bank of England’s latest interest rates hike to 1.25% but more companies and jobs can be saved if business leaders act early.
It is expected that companies on LIBOR plus interest rates will be impacted immediately by the new 1.25% rate but more companies and jobs can be saved if business leaders act early.
The impact of rising interest rates on UK businesses is going to be seismic, with liquidations already peaking before the Bank of England raised interest rates to 1.25% and a likelihood they will keep rising.
The challenges facing businesses are significant and whilst nobody can magic away what’s coming, more businesses and jobs can be saved using these new procedures.
Insolvency inevitably means some creditors will lose money – that is the downside of a market economy – however, where a business can be salvaged via a pre-pack administration, a restructuring plan, or a CVA, jobs will be saved and there will be a revitalised entity to trade with on the other side.
The UK is blessed with a highly regulated and skilled population of restructuring advisors, armed with brand new tools – but with a lead time of at least 12 weeks, it’s critical to take swift and decisive action early and not wait until the bank account is empty.
It is incumbent on business leaders to consult as early as possible, and on advisors to use the new procedures as imaginatively as possible, preserving value and keeping people in jobs that might otherwise be in jeopardy.