Credit, Collections & Insolvency News
Latest quarterly figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales, fell by 0.9% compared to Quarter 2s (Q2) figures of 5,645 and a 40.3% increase compared to Q3 2021 (3,987). Q3 2022’s figures were also 27.9% higher than Q3 2019’s figure of 4,375.
The number of business insolvencies in Q3 2022 was 1% lower than in Q2 2022 after seasonal adjustment, the number of CVLs remained close to the highest quarterly level since records began in 1960. Additionally, in the four quarters ending Q3 2022, all industries saw increased insolvencies in comparison to the period ending Q3 2021.
The business insolvencies, included 4,800 creditors’ voluntary liquidations (CVLs), 492 company liquidations, 274 administrations, 29 company voluntary arrangements (CVAs), and there were no receivership appointments.
Creditors’ voluntary liquidations (CVLs) were the most common company insolvency procedure (86% of cases), followed by compulsory liquidations (9% of cases), administrations (5% of cases) and company voluntary arrangements (CVAs; 1% of cases). There were no receivership appointments, which are now rare. The number of CVLs was near last quarters record high in the time series, which began in 1960.
The number of compulsory liquidations in Q3 2022 was 28% higher than in the previous quarter and more than four times as high (332% higher) as in Q3 2021.
The number of administrations in Q3 2022 was 14% lower than the previous quarter, but 61% higher than the number in the same quarter of the 2021, after seasonal adjustment.
The number of CVAs was 9% lower in Q3 2022 than in Q2 2022, but 45% higher than Q3 2021.
The three industries (in accordance with SIC 2007) that experienced the highest number of insolvencies in the 12 months ending Q3 2022 were:
These were also the three sectors with the most insolvencies in the 12 months ending Q3 2021. The construction industry usually has the highest quarterly number of insolvencies of any industrial grouping.
Christina Fitzgerald, President of insolvency and restructuring trade body R3, said “Two years of economic turbulence are translating into a rise in corporate insolvencies. Government support paused rather than prevented the economic effects of the pandemic from leading to more businesses entering insolvency processes, but now that support has ended, we’re starting to see numbers exceed pre-pandemic ones.”
“Although the figures published today show a quarterly fall in corporate insolvencies – driven mainly by a reduction in Creditors’ Voluntary Liquidations and administrations, as well as the summer bringing the traditional slowdown in inquiries and appointments – they are still the second highest quarterly figures for corporate insolvencies in a decade.”
“Despite the quarterly fall in Creditors’ Voluntary Liquidations, figures for this process are higher than this time last year, the highest we’ve seen in Q3 for 10 years and close to the highest figure we’ve seen since 1960. Compulsory liquidations have also risen compared to the last quarter and are at the highest level since before the pandemic.”
“The cause of the increases in figures for these processes is a perfect storm of directors running out of road and creditors being able to pursue unpaid debts after the temporary legislation designed to deter this ended in the summer.”
“It seems inevitable that numbers will increase in the coming months as the state of the economy, increased costs, and people’s reluctance to spend money because of the cost of living deals a further blow to those businesses that have struggled since the beginning of the pandemic.”
Gareth Harris, Restructuring Advisory Partner at RSM UK, said “These quarterly statistics confirm our current experiences that it is almost impossible to pinpoint a sector that is not being affected by the current economic situation. Whilst it may be no surprise that some insolvency numbers are now at their highest levels since the 1960s what is startling is the very significant increase in some of our key industries such as the 96% increase in wholesale and retail trade; repair of vehicles.”
“The challenge for businesses is the sheer number of individual pressures which are accumulating, with the latest being the significant increase in borrowing costs caused largely by the very recent economic instability.”
“These numbers also demonstrate the ongoing trend of smaller companies reaching the end of the line, but enquiries from larger companies more likely to face administration are also increasing as they use their reserves and cash balances built up over the last couple of years. As we clearly start to enter a recession, we fully expect that liquidations will remain at this high level for a considerable period, but that administrations will also increase to at least previous historic numbers and beyond.”
Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon and President of the Insolvency Practitioners Association (IPA) said “The year-on-year increase in insolvencies in Q3 2022 is unsurprising given the challenging trading conditions and market volatility facing many businesses.”
“This rise in insolvencies has, once again, largely been due to a significant year-on-year increase in the number of Creditors’ Voluntary Liquidations (CVLs) which accounted for 86% of all insolvencies in Q3 – a trend we have seen continue since the end of all COVID-19 government support measures earlier this year. We are now also seeing numbers of compulsory liquidations increase with numbers four times higher than they were at the same time last year.”
“As companies navigate multiple headwinds including inflation, rising costs and labour challenges, many are now also dealing with falling consumer demand. This is set to worsen with the UK economy likely to be in recession until the middle of 2023, according to the latest EY ITEM Club Autumn Forecast.”
“These headwinds are now having a direct impact on profitability. EY-Parthenon’s Profit Warnings report, released earlier this week, found that warnings from UK-listed companies increased 69% year-on-year in Q3 2022 with over half of warnings (57%) linked to rising costs. Consumer-facing companies have been most affected, with warnings rising almost three-fold in Q3 2022 year-on-year. ”
“The number of companies who have issued their third consecutive profit warning in the last year now stands at 28, compared to 18 at the end of Q2 2022. On average, one-in-five companies delist within a year of their third warning, most due to insolvency.”
“As many businesses gear up for their busiest quarter in the lead up to Christmas, it is crucial they use this period of high demand to build operational and financial resilience to face more challenging times ahead.”
Nick O’Reilly, Director of Restructuring and Recovery at MHA said “It is no surprise that insolvencies this quarter are much higher than those for the third quarter in previous years. Before Covid-19 low interest rates and easy credit sustained a large number of SMEs. The pandemic relief schemes, such as furlough and the bounce back loan scheme, kept these companies afloat when they would otherwise have sunk.”
“Now, with rising interest rates, tighter credit and no pandemic style support a substantial rise in insolvencies over the next 2 years is inevitable. The ‘zombie companies’ that have previously survived off low interest rates will be among the many to go. The majority of insolvencies are likely to be Creditors’ Voluntary Liquidations, generally affecting smaller companies.”
“The government is actually doing most of what it can. Its decision to extend the repayment of the bounce back loan scheme from 6 years to 10 is a sensible one. The loss of these zombie companies over the next few years will allow more successful companies to flourish in their particular marketplaces so higher insolvencies now may be a price worth paying for the government if a period of sustained economic growth follows.”