Business insolvencies fall by 17%

Latest figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales in March 2024,  was 17% lower than in February 2024 (2,177) and 17% lower than the same month in the previous year (2,193 in March 2023).

The number of registered business insolvencies totalled 1,815 with insolvencies comprising of 261 compulsory liquidations, 1,437 creditors’ voluntary liquidations (CVLs), 108 administrations and 9 company voluntary arrangements (CVAs). 

CVLs accounted for 79% of all company insolvencies. The number of CVLs decreased by 18% from February 2024 and was 19% lower than during the same month last year (March 2023) after seasonal adjustment.

The number of seasonally adjusted compulsory liquidations in March 2024 was 3% lower than in February 2024 and 9% lower than in March 2023.

Whilst the number of administrations in March 2024 was 30% lower than in February 2024 and 14% lower than in March 2023, after seasonal adjustment.

The number of CVAs was 25% lower in March 2024 than March 2023 and 31% lower than in February 2024. Numbers remain low compared to historical levels. CVAs are not seasonally adjusted due to low volumes.

One in 179 companies on the Companies House effective register (at a rate of 55.8 per 10,000 companies) entered insolvency between 1 April 2023 and 31 March 2024. This was an increase from the 53.5 per 10,000 companies that entered insolvency in the 12 months ending 31 March 2023. These 12-month rolling rates are calculated as a proportion of the total number of companies on the effective register to show longer term trends and reduce the volatility that would be associated with estimates based on single months.

While the insolvency rate has increased since the lows seen in 2020 and 2021, it remains much lower than the peak of 113.1 per 10,000 companies seen during the 2008-09 recession. This is because the number of companies on the effective register has more than doubled over this period.

Buisness insolvencies peaked during the 2008-09 recession following the gradual decline seen over the early 2000s. Volumes then rose during 2018 and 2019 before falling to the lowest monthly volumes on record during the COVID-19 pandemic. Company insolvencies then increased during 2021 and 2022, with 2023 seeing the highest annual number of company insolvencies since 1993.

Tim Cooper, President of R3, the UK’s insolvency and restructuring trade body, and a Partner at Addleshaw Goddard said “The biggest driver of the monthly and yearly fall in corporate insolvency numbers is a reduction in Creditors’ Voluntary Liquidations. However, numbers for this process and overall levels of corporate insolvency are still higher than they were pre-pandemic.

“High costs and constrained spending have continued to hit businesses hard in the first three months of this year. The latest available sectoral data shows that construction is currently the industry experiencing the highest levels of insolvency, and the figures for this sector for November 2023-January 2024 are slightly higher than they were in the same period last year. This is because insolvency numbers have increased amongst firms working on the construction of residential and non-residential buildings, as well as in specialist construction activities.

“I would suggest that the main drivers of this are the delays in construction starts in the three months to October of last year, which will have affected the main contractors and those specialist construction firms whose work takes place in the later stages of construction projects. These specialist firms are also vulnerable to impacts of delayed start times and of the cost of materials. There were also a number of high profile construction sector insolvencies in that period, and the cascade-effect can take a while to impact on the supply chain into this sector.

“While the wider trading climate is a challenging one, there are signs directors expect revenues to increase this year, and this suggests the mood among the business community is becoming more positive. However, it remains to be seen whether inflation falls quickly enough to benefit businesses, and whether the hoped-for increases in income outstrip potential rises in costs and wages.

“Directors need to be alert to the signs their business is distressed, and act on any indications it might be as soon as they present themselves. Cashflow issues, increases in stock, and problems paying taxes or invoices are all signs a business is financially distressed, and the quicker these are acted upon and professional advice sought, the greater chance there is of the situation improving.”

Simon Edel, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon said “The number of registered company insolvencies fell 17% year-on-year in March, however the number of company insolvencies remains higher than those seen during the pandemic and between 2014 and 2019.

“Beyond the official data, we’re seeing an increase in activity across the restructuring spectrum, including more balance sheet restructurings, asset sales and a rising focus on working capital as companies look to reshape their businesses in response to a changing market. Distress is also now impacting mid-market and larger corporates, as well as smaller businesses.

“Refinancing is likely to be a key hurdle for many businesses this year. Forecasts by EY-Parthenon estimate that in the next three years, £500bn of private and corporate debt will need to be refinanced by UK-listed companies, costing an additional £20-25bn in annual debt service costs. Although inflation is easing, companies should act now and focus on protecting their balance sheets by improving liquidity and access to working capital ahead of refinancing events, rather than waiting for interest rates to come down.”

Daniel Staunton, Senior Associate in the Restructuring & Insolvency team at Kingsley Napley said “Today’s monthly insolvency statistics for March 2024 show that there were 1,815 registered company insolvencies, 17% lower than both last month and March 2023 but still higher than pre-pandemic levels.

“March 2024 saw: 261 compulsory liquidations, 1,437 CVLs, 108 administrations, 9 CVAs. These figures were all down from last month and down from March 2023. CVLs accounted for 79% of all company insolvencies but down 18% from last month.

“The stats this month reveal a change of direction to the steady upward trajectory of UK insolvencies from January to March 2024. This could be as a result of recent announcements that inflation has fallen to a low of 3.2% recently and an early sign businesses are faring better than we thought. That said, I think it is too soon to speak of a “trend” in the opposite direction. I still expect the total number of insolvencies to gradually increase as we move throughout the year but it will be very interesting to see the April and May 2024 figures to see if there are further dips before the numbers creep back up again. What will not surprise anyone is that the worst hit sectors continue to be construction, retail and food and beverage companies which I expect to continue.”

Oliver Collinge, Director at PKF Littlejohn, said “Although the latest figures show a fall overall, corporate insolvencies remain at a very high level and, whilst high profile casualties tend to grab the headlines, it is worth considering how the climate of economic uncertainty affects SMEs, which make up 99% of all UK businesses. Ongoing supply chain challenges, weak consumer confidence and a consistently high cost of doing business all present real challenges.

“It’s critical that businesses act early and seek advice if they are struggling, or if they expect their cash flow to be limited in the coming months. The earlier they act, the more options they will have to secure the long-term survival of their business. This is crucial to enable SMEs, which are at the core of the UK economy, to survive and thrive.”

Commenting on the latest construction insolvency statistics Kelly Boorman, National Head of Construction at RSM said “In the 12 months to February 2024, construction experienced the highest number of insolvencies above any other industry. Given the acute pressures the industry is facing, we can expect this number to continue rising. Pipelines are full with many businesses having secured works for 12 months ahead, however the supply chain has been struggling with continual changes to project mobilisation dates being pushed back and pulled forward. This is adding additional pressure to the supply chain and its workforce. The uncertainty of start dates and volume of work is making for an unstable environment, and it is difficult for businesses to predict their working capital needs.

“The unpredictability of working capital needs to deliver the project pipeline, coupled with businesses reporting losses on legacy contracts continues to create challenge to access affordable debt and appetite from funders. The industry urgently needs a review of how businesses are funded and the cost of those debt facilities. Businesses in the supply chain are stuck between a rock and a hard place as there’s a pipeline of activity, but without access to capital, are unable to deliver on projects.

“With a predicted surge in housing activity and large infrastructure project awards anticipated, there is an overtrading risk looming. This could lead to multiple acquisitions and redeployment of labour in the supply chain, especially as the housebuilding market picks up. As a result, subcontractors will be carefully considering their involvement in major infrastructure projects, adding to an already unstable marketplace.”