According to company insolvencies statistics recently released by The Insolvency Service for Q3 July to September 2019, administrations and creditors’ voluntary liquidations have reached their highest quarterly levels for several years.
Administrations
The objective of administrations is the rescue of companies as a going concern, or if this is not achievable, then to obtain a better outcome for creditors than would be probable if the company were to be wound up. In Q3 2019 there were 484 administrations, an increase of 20.0% from Q2 2019. This is the greatest number of administrations since Q1 2014 and a 26.7% rise compared to the same period in 2018. While 2019 has seen a recent increase, the number of administrations is low in contrast to the period around the 2008/09 recession. Administrations peaked at 2,094 in Q4 2008 during the recession before decreasing until 2014, where they remained largely flat (at less than 400 administrations per quarter) until Q4 2018. This year has seen the 3 highest quarters for administration since Q1 2014.
Creditors’ Voluntary Liquidations
Liquidation is a legal process in which a liquidator is appointed to ‘wind up’ the affairs of a limited company. The purpose of liquidation is to sell the company’s assets and distribute the proceeds to its creditors. At the end of the process, the company is dissolved – it ceases to exist.
The Insolvency Service statistics state that in Q3 2019, underlying CVLs rose to their highest point since Q1 2012. Underlying CVLs peaked during the 2008/9 recession totalling 3,586 in Q2 2009. Post-recession the number of underlying CVLs generally decreased, though not to the levels seen before the recession. Underlying CVLs reached a quarterly low of 2,433 in Q1 2015 from which point a largely increasing trend in volumes was seen.
However, it should be noted that volumes alone do not provide the full story. Comparing Q2 2019 with Q1 2013, when the trends in volumes and rates appear to diverge, the number of active companies had risen by 42% from 2.6 million to 3.7 million. Comparing the same periods, underlying CVL volumes have increased by 10%. The CVL liquidation rate comprises a rolling 12-month period rather than just a single quarter, so there is some gap between the actual number of CVLs and the CVL liquidation rate. The CVL liquidation rate reached a high in the 12 months ending Q4 2009 at 62.1 per 10,000 active companies. Post-recession there was an overall reduction in the CVL liquidation rate until a low in the 12 months ending Q1 2018, when the liquidation rate stood at 29.1 CVLs per 10,000 active companies.
Source: Insolvency Service