UNITED KINGDOM: CORPORATE INSOLVENCIES ARE GOING FROM ZERO TO A HUNDRED AFTER END OF GOVERNMENT SUPPORT MEASURES

Before 2020: a pre-pandemic world with low insolvencies

In the years leading up to the pandemic, corporate insolvencies had generally been relatively stable with around 16,500 companies going insolvent a year between 2015 and 2019. Meanwhile, the liquidation rate came down further in these years (from 47 to 42 insolvencies per 10,000 active companies) which underlines that corporate insolvencies were relatively low in 2019. They had fallen from a rate of around 250 insolvencies per 10,000 active companies in 1992-93, to around 40 per 10,000 active companies.

This fall in the liquidation rate was for a large part due to the fall in interest rates over the past thirty years.But it was also driven by a better macroeconomic situation in the pre-pandemic period compared to 1992-93 as well as some stronger fundamentals. The net profit margins of listed companies were around 4.3% in 1992-93 and 7.6% in 2017-19.

2020 to 2021: the Government Support Era

2020 was a transformative year with the many government measures to support companies during lockdowns completely altering the normal insolvency dynamics. These schemes such as the furlough schemes, Covid support loans as well as a suspension of lawful trading rules and a moratorium restricting winding up petitions, meant thatthe number of corporate insolvencies actually fell dramatically in 2020 (-28%) and remained historically low for the first half of 2021 as well.