Insolvencies down as businesses turn to CVAs
Figures published by the Insolvency Service show an overall decrease in the number of insolvencies this quarter, with firms turning instead to other methods such as CVAs to settle their debts.
Corporate insolvencies were down 19.1% in the second quarter of this year compared to the same period last year. There were 4,080 company liquidations in total, a 0.5% increase since the start of the year.
Compulsory liquidations reduced by 21% on the previous year, with 1,169 companies taking this route. The number of businesses entering into creditors’ voluntary liquidations (also known as company voluntary arrangements, or CVAs) went up by 5.4% on the previous quarter, with 2,911 companies choosing this method.
Restructuring experts predict the downward trend for insolvencies will continue, as more businesses opt for CVAs and other arrangements.
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A Company Voluntary Arrangement (CVA) is an insolvency procedure
I have read the article with interest. There is an overall decrease in corporate insolvencies, but this is not due to the increase in CVAs. A CVA is in fact also a formal insolvency procedure.
The first part of the article advises (in para 3) that creditors voluntary liquidations are also known as company voluntary arrangements. They are not. They are two entirely different corporate insolvency procedures. What the Insolvency Services figures actually state is that company liquidations (comprising both compulsory liquidations and voluntary liquidations) decreased 19.1% in Q2 of 2010 compared to Q2 of 2009. Receiverships are down 12.5%, Administrations down 24.3% and Company Voluntary Arrangements (CVAs) are up a significant 47.8%, although in raw numbers there were 232 CVAs in Q2 of 2010, whereas there were over four thousand liquidations in the same period.
One of the main reasons for the overall reduction in corporate insolvencies is the "time to pay" arrangements that have been afforded to companies that are in arrears, evidenced by the reduction of compulsory liquidations, where HMRC would previously have petitioned earlier. The time to pay arrangements will not last forever. I expect there will be a rise in corporate insolvencies as these expire later this year and are not renewed as the Treasury goes in search of the funds HMRC are owed.
Stephen Powell, Insolvency Practitioner, HJS Recovery.