After months of few business insolvencies, is the balance about to tip?


Whilst demand for insolvency assets is at an all-time high, the pandemic has meant that there have been fewer insolvency assets hitting the auction market in recent months.

But with auction houses now reporting increased demand for valuations, it looks like that is about to change, says James Nickless-Allen, Account Director, UK Marketplaces.

The economic consequences of COVID-19 will, without doubt, be widespread for a prolonged period of time. Despite the recent positive news of a forthcoming vaccine, the changing government restrictions and continued financial uncertainty mean that the implications for business are vast.

Whatever your assessment, one thing is clear: the number of company insolvencies has declined over recent months. According to the latest figures from the government’s Insolvency Service, the number of firms becoming insolvent in the third quarter of 2020 was 39% down on the same period in 2019.

Terry Madden, Director at Wyles & Hardy, is seeing the impact first-hand,

“The number of company insolvencies has remained relatively low since August against a backdrop of a large amount of very public restructuring activity in the retail & hospitality sectors”.

Whether this is a direct consequence of the Government’s furlough scheme and other support measures or not, the reality is that fewer assets have been hitting the market, resulting in increased demand and, in turn, an increase in the average lot price when they do.

We are seeing this reflected on ATG’s insolvency and industrial equipment marketplace, –  between May and September the Total Hammer Growth versus opening price was at 270 per cent, up 75 per cent on the same period in 2019.

There are other pandemic-related factors at play which have had an impact on the amount of business insolvencies. Court activity has been reduced, and temporary measures were introduced in the Corporate Insolvency and Governance Act to protect businesses from insolvency.

This is a trend that could continue to rise in the short term, causing even more delays to assets hitting the market, particularly as the Government has extended the furlough scheme until the end of March.

So, the question is not if, but rather when, in the near future, we will see a huge influx of products from failed businesses hitting the market. Last week’s news about Arcadia and Debenhams suggests it could be soon. And for some weeks now, auctioneers have been telling us that they are being instructed on increasing numbers of valuations – a traditional precursor to forthcoming insolvencies.

Madden says, “It is anticipated that the numbers of company insolvencies will rise in the second quarter of 2021 as the various support packages fall away. Stakeholders are continually reviewing their security position in this volatile market leading to an increase in valuation instructions for security/lending purposes”.

Auctioneers will be thinking carefully about how to stagger assets when they introduce them to market, in order to achieve the best prices. After all, if the pandemic has shown us anything, it is that it is never too early to start preparing.

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