Business insolvencies fall by 20.4%

Latest figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales for July 2023 decreased by 20.4% to a total of 1,727 compared to July  and decreased by 5.7% compared to July 2022’s figure of 1,831.

Business insolvencies increased by 57.6% compared to July 2021 and increased by 19.9% compared to July 2019

Of the 1,727 registered business insolvencies 1,336 CVLs, which is 17% lower than in July 2022. There were 248 were compulsory liquidations, which is 81% higher than July 2022, 19 were CVAs, which is almost 4 times as many as July 2022.There were 124 administrations, which is 53% higher than July 2022. There were no receivership appointments.

There were 248 compulsory liquidations in July 2023, 81% higher than in July 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 1,336 Creditors’ Voluntary Liquidations (CVLs), 17% lower than in July 2022. The numbers of administrations and Company Voluntary Arrangements (CVAs) were higher than in July 2022.

Nicky Fisher, President of R3 said “The fall in corporate insolvency levels is due to fewer businesses entering a Creditors’ Voluntary Liquidation. However, a large number of directors are still using this process to close down their businesses.”

“Despite the monthly and yearly falls in corporate insolvencies, numbers are still well above pre-pandemic levels as the economic issues continue to bite businesses.”

“Costs are rising at a time when people are cutting spending back, leaving businesses facing the challenge of squeezed margins and shrinking revenues and having to work out whether to absorb their cost increases or pass them onto their customers.”

“Alongside these, requests for wage increases, and higher energy bills are also hitting businesses hard as the costs of cooling premises in the summer are just as challenging as keeping them warm in the winter. These are making firms more cautious about investment or recruitment – especially as the increased cost of borrowing will make raising funds for investment more challenging.”

“As we move towards the end of the summer – a period of time which is traditionally quiet for a lot of companies – we urge directors to be vigilant to the signs of financial distress and act if any of them present themselves.”

“If firms are having cashflow issues, problems paying rent, staff or suppliers, or seeing stock start to pile up, it’s likely they’re financially distressed – and in this scenario, their directors should seek advice as soon as possible.”

 Marieta van Straaten, Legal Director in the Restructuring & Insolvency team at Kingsley Napley said  “Today’s insolvency statistics show that there were 1,727 registered company insolvencies in July 2023, 6% lower than the number of company insolvencies in July 2022.”

There were 248 compulsory liquidations in July 2023, 81% higher than in July 2022. Although CVLs (at 1,336) were 17% lower than in July 2022, the number of administrations increased to 124, which is 53% higher than in July 2022.”

“The figures released today show that whilst the UK’s GDP growth exceeded expectations in June 2023 and for Q2 2023 as a whole, it had very little or no effect on companies already struggling to keep afloat. Although the total number of registered company insolvencies is down 6% from July 2022, the figures released today do not reflect the impact the latest interest rate hike of 0.25% on 3 August 2023 (with interest rates at 5.25% now the highest in 15 years) will have on consumer confidence and companies struggling with large debts.”

“Many sectors remain under strain including retail. Just last week we saw Wilko, a family-owned company that has been on the UK high street since 1930, collapse into administration putting some 12,000 jobs at risk. The National Institute of Economic & Social Research warned last week that the UK is still at a 60% risk of falling into recession next year. Although July 2023 has seen a small reduction in company insolvencies compared to July 2022, the gloom is not over yet and we expect insolvencies to rise in the coming months.”

“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 clearly demonstrate that conditions remain challenging with rising interest rates proving detrimental for both businesses and consumers coupled with the economic bugbears of inflation and stagnant growth. Unfortunately, these challenges are not contained within a few sectors; we are seeing businesses ranging from sports and leisure, retail and technology approaching us with a multitude of corporate issues that urgently need addressing.”

In particular, we are seeing rising enquiries relating to HMRC issues and CBILS loans that are coming to an end causing problems for companies, specifically those looking to refinance. The fact that CVAs and administrations were up significantly in July suggests that businesses are seeking a rescue rather than simply closing, which is what we were seeing earlier this year. As is often the case, if problems are dealt with early then creative solutions can often be found to rescue businesses and save jobs. The uncertain economic climate is likely to continue and it will be the companies that plan effectively that will be able to trade through this testing period.”

Nick O’Reilly, Director of Restructuring and Recovery at MHA said “Despite a surprise uptick in GDP in Q2 and the prospect of falling inflation, the outlook for company insolvencies remains bleak. The aftermath of the government’s inflated pandemic support package, alongside a recovery that has not materialised, will continue to cause large numbers of businesses, both large and small, to fail.”

“Wilko’s collapse last week highlights the danger facing many brands and they certainly won’t be the last major high street brand to fail in 2023.  The chances of rescuing Wilko at its current scale seem slim and imminent large-scale job losses are highly likely.”

“While the government’s reversal on takeout alcohol sales for pubs was a boost for the hospitality sector, wholesale support for businesses is desperately needed to stem the tide of insolvencies, which look set to continue rising in 2024 and possibly beyond. However the government seem willing to accept large levels of insolvency cases while they prioritise battles on other economic fronts in the short-term.”

Lindsey Cooper, partner at RSM UK Restructuring Advisory, said “These figures are not unexpected and are in line with our predictions. The fall in CVL numbers reflects the fact that many of the insolvencies at the smaller end are being flushed out of the system. The significant increase in administration and CVA numbers shows that larger companies, many of whom have high levels of debt and up until now have been able to withstand the economic and financial challenges, are now having to deal with the impact of high interest rates, as well as the continuing sticky inflation around wages. However, it should be remembered that unlike CVLs, in most instances the administration and CVA processes do allow businesses to be preserved and jobs to be saved.”