Business Insolvencies on the increase?

It’s well over 12 months since the Government launched the popular Bounce-Back Loan Scheme (BBLS), with over 1.5 million government-backed loans of up to £50,000 being made and totalling £47bn.  There has also been a further £31bn in loans for CBILS & CLBILS loans.  The first of these will now have reached the point at which first repayments need to start to be made or deferred further. 

This was always going to be a point at which we started to see increased numbers of companies slip into insolvency.  Looking at the daily Statement of Affairs (SofA) numbers, it looks like we are now starting to see that increase.

We analysed the 56 companies we could identify that had filed a SofA at Companies House on a specific date in early July to see whether they have taken advantage of the Government loan schemes and whether they had other debts too.  Of the 56:

  • 23 (41%) did not appear to have taken out any of the Government rescue loans.  These tended to be older companies on the whole.
  • 13 (23%) had BBLS and several other debts, usually HMRC and trade creditors.  One of these also had a CBILS.
  • 20 (36%) had or appeared to have a BBLS but no other debts.   This category became more common the more recent the incorporation date of the company.

It’s interesting that over 2/5 of companies that failed appeared not take advantage of any government-backed loan support.  Of course, they may well have received grants such as the popular Covid Job Retention Scheme (CJRS) whereby staff are furloughed.

The 23% who had a range of debts appear to be what I would call ‘normal’ insolvencies; the companies are in financial difficulty and unable to meet their obligations as payments fall due.

The final 36% are interesting, particularly those with the more recent date of incorporation.  There were quite a few of these that were incorporated in 2019 and even early 2020 who have never filed accounts and were therefore able to project their future income and apply for a BBLS based upon that.  Most of the 36% took out the maximum BBLS (£50,000) and are now insolvent, many never having filed accounts.

With Insolvency Practitioners being required to investigate whether the BBLS has been used for the purposes intended, it will be interesting to see what happens with cases such as these over  the coming months and years.  I also suspect this is just the tip of the iceberg and we will see increasing insolvencies over time.