COMPANIES, DAMNED COMPANIES AND STATISTICS – CORPORATE INSOLVENCY THROUGH THE YEARS: HAVE WE GOT IT RIGHT WITH THE EXISTING REGIMES?��

PROFESSOR ANDREW KEAY, UNIVERSITY OF LEEDS

PROFESSOR PETER WALTON, UNIVERSITY OF WOLVERHAMPTON

INTRODUCTION

• Companies may enter some kind of formal insolvency regime

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• Paper examines the statistics that have been gathered in relation to company insolvencies in England and Wales and it focuses on the numbers of companies entering all of the formal corporate insolvency regimes that have been available for insolvent companies over the years

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AIMS AND STRUCTURE

• Aim - to analyse the statistics, and then to ascertain what can be learned from the statistics as far as the employment of the regimes is concerned

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• Structure – (A) explain both the methodology applied to the research for the paper and the relevant statistics that are analysed in the study. (B) analyse these statistics by considering them in four time zones which have been selected based on extraneous circumstances and policy interventions. (C) Reflections on the numbers of the various insolvency regimes over the years. (D) Some concluding remarks.

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A DATA? ANY USE?

• Data – mixture of data from different sources which are available publicly. We are most grateful for the assistance of the Insolvency Service in identifying a number of sources of such data.

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• Methodology - ‘A simple way to assess whether the EA has achieved the policy aim of restricting the use of administrative receivership and encouraging the use of administration is to consider changes in the use of these and other corporate insolvency procedures over time.’

Insolvency Service EA 2002 Evaluation

B TIME ZONES

• Pre - 1987
• 1987 – 2002
• 2003 – 2019
• 2020 - 2022

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Pre-1987

GENERAL COMMENTS

• Total liquidations increased progressively (in the main)
• Early 1960s recovery from 1961 recession
• Early 1970s uncertainty / decimalisation / EEC / oil crisis
• Early 1980s recession
• 1981 onwards CVLs outstrip compulsory WU significantly – double in 1985 and 1986
• Centrebinding? Outlawed 1987/8

1987-2002

GENERAL COMMENTS

• Administration and CVAs did not take off – might be surprising given the recession of the early 90s
• Administrations – need for court order – time and costs
• CVAs – no moratorium by way of protection
• No way of telling how many CVAs followed admins
• Dominance of CVLs

2003- 2019

GENERAL COMMENTS

• Continued dominance of CVLs
• Throughout the period CVL numbers were substantially higher than companies entering court liquidation. The percentage by which CVLs were higher than compulsory windings up varied. For many years in this period the gap between CVLs and compulsory windings up grew much wider than earlier.
• CVA numbers continue to be low notwithstanding the advent of the small company moratorium
• Except for the jump in numbers early on in this period, administration numbers did not show a sustained major leap and were still were not that high (particularly compared with liquidation) notwithstanding the introduction of the extra-judicial process to commence administration

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2020-2022

GENERAL COMMENTS

• Covid 19 late January 2020
• Government protection in place
• HMRC regained preferential status late 2020
• Fewest compulsory WUs on record in 2021
• 2022 over 80% of all insolvencies CVLs
• Compared with 2017 CVA numbers fell by over 65% and CVLs up by 85%
• 2021 Pre-Pack Regs have had no real impact on numbers of Pre-Packs
• Too early for permanent CIGA provisions to have impact?

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C REFLECTIONS

• The number of insolvencies has clearly increased and significantly so in many years or ranges of years, often due to economic circumstances and to increased incorporations
• Ever since records began CVLs have always been the most used insolvency regime. They have increased in proportion to compulsory liquidation for the vast majority of years in our study. Even since the introduction of extra-judicial administrations in 2003, CVLs have continued to increase significantly. In the past few years, the numbers have been very high
• Post 2003 it is surprising that administrations did not figure more when considering the picture with all regimes. It seems odd that CVAs have never become really popular. Perhaps due to the stance taken by the HMRC and the rise of the pre-pack
• The ‘rescue culture’ introduced by the IA 1986 did appear to be having a slow but certain impact throughout the 1990s (over 600 administrations and 600 CVAs in 2002). After that there is an increase in administrations and CVAs up until 2013. From 2013 onwards we see a general decline in the numbers of companies entering administration or CVA

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• Will the advent of RPs mean that CVAs will continue to struggle?
• One would not think that RPs would have a great effect on CVAs as the RP does not suit SMEs and, prima facie, CVAs do.
• Companies can now take advantage of the Part A1 moratorium. Thus far, however, the moratorium has not been used much, with 40 moratoriums to the 30 September 2022 (Insolvency Service, Post Implementation Review of CIGA, para 3.2) But what now we are out of COVID? Increase with familiarity?
• Given the fact that the insolvency regime statistics for recent years have been affected significantly by COVID, it is difficult to say what is likely to happen in ensuing years.
• It is probable that the total insolvencies for 2023 and following years will increase and possibly significantly. Indications are that businesses are now suffering the aftermath of COVID.

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• Since 2011-12 the number of dissolutions has increased substantially, from 267,200 in 2011-12 to 546,441 in 2021-22 (much higher than the rate of increase of incorporations). Some of those dissolutions will involve companies that had previously entered liquidation or administration, but the numbers far outstrip the number of annual insolvencies - used by the unscrupulous?
• Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 is designed to prevent, inter alia, dissolution of a company, other than in the legitimate situation where there are no outstanding creditors, where it is open to abuse. It was granted Royal Assent and came into force on 15 December 2021.

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D Conclusion

• Liquidations are by far the most popular regime for insolvent companies
• CVLs in particular notwithstanding the introduction of administration and the CVA in 1986
• Administration did not really take off until EA 2002 but how has it been used? Quasi liquidation or receivership?
• CVAs never really took off but are now very much on the wane
• CIGA provisions may encourage more rescue activity

Conclusion

• With the convergence of liquidation and administration, it may be that we do not need both procedures anymore
• If a moratorium would encourage rescue, it may be that a single gateway for companies, involving a moratorium, should be considered
• Depending upon an initial assessment of the company’s situation, a clear plan be made
• That plan may be immediate liquidation but it may also be rescue in the form of a CVA or RP