Credit, Collections & Insolvency News
Latest figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales for April 2023 fell by 15%.
The number of registered company insolvencies in April 2023 was 1,685, 15% lower than in the same month in the previous year (1,988 in April 2022).
Business insolvencies decreased by 31.8% in April 2023 to a total of 1,685 when compared to March’s total of 2,471, and decreased by 15.2% compared to April 2022’s figure of 1,988.
There were 183 compulsory liquidations in April 2023, which is nearly twice the number in April 2022. 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 presented by HMRC.
There were 1,368 Creditors’ Voluntary Liquidations (CVLs), 23% lower than in April 2022. Numbers of administrations and Company Voluntary Arrangements (CVAs) were higher than in April 2022.
The business insolvencies consisted of 1,368 Creditors’ Voluntary Liquidations (CVLs) which is 23% lower than in April 2022. There were 183 were compulsory liquidations, which is almost twice the number in April 2022 whilst 12 were CVAs, which is 20% higher than April 2022. There were also 122 administrations, which is 8% higher than April 2022;
There were 183 compulsory liquidations in April 2023, which is nearly twice the number in April 2022. 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 presented by HMRC.
Nicky Fisher, President of R3, the insolvency and restructuring trade body said “Despite the monthly fall in corporate insolvency figures, total numbers are still above pre-pandemic levels, and the key reason for this is that Creditors’ Voluntary Liquidations are higher than they were in 2019.”
“After three years of disturbed trading and a choppy economy, it’s clear that directors have simply had enough or have realised the time is right to shut down their business while the choice is still theirs to make.”
“The business climate is still tough. Firms right across the supply chain are trying to manage increased costs without passing this on to their customers, and with inflation remaining sticky, this is likely to become ever more challenging as the year progresses.”
“We are also waiting to see the real impact of rising interest rates – and may not see the cumulative impact of the rate rises until later in the year as fixed term credit arrangements come to an end. Businesses could potentially face a credit cost shock just as inflation is predicted to ease, and could mean we’re looking at a one-step forward, one-step back situation, rather than a sustained improvement in the trading climate.”
“Given this, and the ongoing challenges businesses face, we urge directors to remain vigilant and act if they see any signs it might be distressed, or if they start to worry about it or its financial health.”
Gareth Harris, Partner at RSM UK Restructuring Advisory, said “These latest insolvency figures show some welcome and anticipated news that we may be starting to see that overall insolvency numbers have peaked and will now start to fall back to more normal levels during 2023 (albeit still considerably higher than the Covid period).”
“While we anticipate that shut down Voluntary Liquidations (CVLs) will reduce fairly significantly over 2023 we still expect that HMRC will continue to be more aggressive in its recovery actions, and therefore Compulsory Liquidations will remain relatively high. We also anticipate that there will be a relatively long tail to the current economic issues for those businesses carrying high levels of debt, as the costs of such borrowing are increasing sharply. This is likely to mean increasing numbers of restructuring processes, and potentially a rise in the level of administrations as part of a solution or rescue process. Hard work by management teams, innovative solutions and creative funders will be required in combination to allow survival for these businesses carrying too much legacy debt.”
Michael Mulligan, insolvency partner at Kingsley Napley said “Today’s insolvency statistics show that in April 2023 there were 1685 registered company insolvencies, 15% lower than the same month last year and 31% lower than March 2023. This follows previous monthly statistics showing a spike in March 2023 where the figures were a 38% increase on the previous month and February 2023 figures were a 7% increase on January 2023.”
“As such, the monthly statistics over the last few months still expose a consistently higher number of company insolvencies compared to last year and generally (with a 13 year high hit in January 2023). ”
“Notable too is a 100% increase in compulsory liquidations in March and April 2023, suggesting that creditor pressure is intensifying and, in particular, HMRC is now taking enforcement action more readily presenting an increased number of winding-up petitions and enjoying the benefit of preferred status once again as a creditor in insolvencies.”
“Whilst the global Covid pandemic is largely over, many companies are still suffering from the long-term economic effects of the same, and many have been unable to turn around their businesses to make up for the long periods of significantly reduced turnover during that period. Certain sectors are under strain more than others, especially retail, hospitality, leisure and construction. The financial issues these companies face have been exacerbated by rising inflation, in particular energy prices, and reduced consumer spending. All of this has had an adverse impact on turnover, profitability, and increased creditor enforcement action has shortened the timescale that companies have in practice to turn their businesses around. Ultimately ‘cash is king’ particularly at a time when interest rates continue to rise. The noose around the neck of struggling businesses continues to tighten for now.”
“Our expectation is that company insolvencies in the UK will continue to rise for the next 6 to 9 months. Unlike the 2009 recession, SMEs are especially vulnerable, and since reduced consumer spending appears likely to be ongoing in the short/mid-term, cashflow issues will continue to be a challenge. A rumoured credit crunch following the recent banking crisis will only make matters worse.”
“The insolvency profession has an essential role to play right now and it is ready to save businesses and jobs in a difficult economic environment. As always, the message to directors of struggling businesses is to take early advice in order to maximise the time available to find a solution to save their business, whether this be an informal workout, a moratorium in order to protect the company for a period of time in order to allow refinancing, a Company Voluntary Arrangement or a Restructuring Plan amongst other possible solutions.”
Mark Supperstone, Managing Partner at ReSolve said “These statistics show that businesses are still operating in challenging times. Whilst the number of insolvencies fell, the slight increase in liquidations and administrations highlights the fact that companies are still facing many ongoing issues. Recent banking crises have made it more difficult for companies to secure investment, leading to challenges for businesses across a range of sectors. The easy access to finance witnessed over the last decade has certainly ended, meaning businesses will have to focus more on cash flow and profitability to remain solvent.”
“That said, the fall in insolvencies does hopefully suggest that conditions are beginning to improve. This backs up what we at ReSolve saw in our recent Corporate Health Outlook Report, which showed that 65% of corporate advisors held a positive outlook for the year. Also signalling optimism, 42% of those with a positive outlook said that they expect to see an uptick in M&A activity in 2023, whilst 19% expect to see an increase in fund-raising to take advantage of growth opportunities. These are all signs of increasing green shoots, suggesting that if businesses can plan properly and seek guidance as required, better times could be just around the corner.”
Nick O’Reilly, Director of Restructuring and Recovery at MHA said “2023 is quickly shaping up to be one of the busiest years for business insolvencies since records began. A perfect storm of high interest rates, inflation, energy costs and low consumer confidence is pushing the weakest to the wall. Without government intervention, this carnage will continue until the end of 2024 at a minimum.”
“Extending the current energy support scheme to 12 months and overhauling the business rate system would relieve significant pressure and provide greater confidence to businesses. With many businesses in dire financial straits, greater leniency from HMRC in respect of tax owed such as a 6 month period to pay, would also give many companies a fighting chance to come through the choppy waters.
“Following an underwhelming spring budget, most businesses will be living in hope rather than the expectation of state support as they face a very challenging second half of 2023.”