Credit, Collections & Insolvency News
Latest figures from the Insolvency Service have shown that the number of business insolvencies in February 2023 was 1,783 in England & Wales, a rise of 17% (1,783) which is higher than in the same month in the previous year (1,518 in February 2022), and 33% higher than the number registered three years previously (pre-pandemic 1,345 in February 2020).
Business insolvencies also increased by 6% in February 2023 to a total of 1,783 when compared to January’s total of 1,682, and increased by 17.5% compared to February 2022’s figure of 1,518. Business insolvencies also increased by 160.3% from February 2021’s total of 685 and by 32.6% from February 2020’s total of 1,345.
The increase in business insolvencies compared to February 2022 was driven by an increase in the number of compulsory liquidations and CVLs. The increase in compulsory liquidations is partly as a result of an increase in winding-up petitions presented by HMRC.
Of the 1,783 registered business insolvencies in February 2023 1,505 were CVLs, which is 13% higher than in February 2022 and 59% higher than in February 2020.
158 were compulsory liquidations, which is more than twice the number in February 2022, but 32% lower than February 2020. 12 were CVAs, which is four times higher than February 2022, but 37% lower than February 2020. There were 108 administrations, which is similar to February 2022, but 27% lower than February 2020;
The number of compulsory liquidations was more than twice the number in February 2022, but 32% lower than in February 2020. Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in winding-up petitions by HMRC according to the data.
Nicky Fisher, Vice President of R3 said “Corporate insolvency numbers are at their highest level in four years due a rise in Creditors’ Voluntary Liquidations. Numbers for this process are higher than in 2022, 2021, 2020 and 2019 as more and more directors are choosing to close their businesses. After nearly three years of lockdowns, supply chain issues, rising costs and falling revenues, many business owners have simply had enough, and are shutting up shop before they are forced to.”
“Trading conditions remain tough for many businesses in England and Wales – and it seems like the traditional Christmas and New Year trading period didn’t give them the boost they needed to survive. People are still very worried about money and the economy, and are reluctant to spend on anything other than the basics, while at the same time the costs of energy, fuel and wages continue to be a major concern for businesses.”
“Now is the time for directors to be aware of the signs their businesses are struggling and to seek advice if they show themselves. Cashflow issues, payment delays and rising stock are all signs a business is distressed and the earlier directors seek advice, the more options they have open to address the issues they face.”
Lindsey Cooper, Partner at RSM UK Restructuring Advisory, said “The impact of the recent hikes in interest rates has yet to fully bite and is likely to cause more challenges over the coming months for those sectors impacted by consumer spending. Additionally, the general tightening of liquidity in the marketplace will continue to cause issues for those companies who already have weak cashflows and so we expect the rise in insolvencies to increase for the next few months.”
“The number of Company Voluntary Arrangements and administrations remain lower than pre -pandemic levels suggesting that larger companies, for the time being, have proved more resilient to the difficult economic conditions.”
Mark Supperstone, Managing Partner at ReSolve said “Rescue procedures (administrations and CVAs) are still lower than they were before the pandemic, whereas voluntary liquidations continue to significantly exceed numbers from pre-pandemic times, likely as a result of business owners reaching the end of the line, after years of difficult trading conditions. The construction, wholesale and retail trade, accommodation and food services sectors are still seeing the highest numbers of insolvencies, which aligns with what we are seeing at ReSolve in terms of incoming inquiries.”
“These stats show the importance of tomorrow’s budget at a time of spiralling costs for British businesses. So what will be in store for mid-sized businesses in tomorrow’s budget? We are all aware that corporation tax is predicted to increase from 19% to 25%, however, this is also the ‘back-to-work budget’ and it is vital that Chancellor Hunt introduces measures to encourage individuals who have chosen early retirement and parents facing the high cost of childcare back into jobs. This will no doubt be a challenging task for the Chancellor, albeit one that is necessary in order to ease the pressure on mid-sized employers struggling with labour shortages. We will be intrigued to see what incentivisation and support he introduces to motivate and enable these key demographics to return to the workforce as these two groups are a rich seam of talent for the UK’s mid-sized businesses to tap into to help to ease the increase in staff costs.’’
Nigel Fox, a Director in the Restructuring & Recovery team at Evelyn Partners said“It is no surprise that the latest monthly insolvency statistics show a year-on-year rise in the number of companies that have entered into a formal insolvency procedure. The effect of Covid restrictions will mean that many businesses will have much less cash to weather the storm caused by such factors as the huge hike in energy costs and the 40 year high in inflation, together with rising interest rates.”
“It is therefore more important than ever for businesses to be vigilant to watch out for the warning signs of potential insolvency and to take appropriate advice as early as possible. Such advice could help directors avoid the personal liability that might arise if they carried on trading when there was no potentially viable plan to successfully ride out the difficult times.”