Business insolvencies fall by 7%

Latest figures from the Insolvency Service have shown that there were 2,191 business insolvencies in England & Wales in July 2024, 7.3% lower than in June 2024 (2,363) but 15.9% higher than the same month in the previous year (1,890 in July 2023). 

The insolvencies consisted of 320 compulsory liquidations, the highest monthly number since before the Covid-19 pandemic, 1,691 creditors’ voluntary liquidations (CVLs), 155 administrations and 25 company voluntary arrangements (CVAs). All types of company insolvency were higher than in July 2023.

CVLs accounted for 77% of all company insolvencies. The number of CVLs decreased by 9% from June 2024 but was 15% higher than during the same month last year (July 2023), after seasonal adjustment. 2023 saw the highest annual number of CVLs since the start of the time series in 1960, continuing the year-on-year increases in CVL numbers seen since 2021.

The number of compulsory liquidations in July 2024 was the highest monthly number since August 2018, 5% higher than in June 2024 and 27% higher than in July 2023.

The number of administrations in July 2024 was 10% lower than in June 2024 but 6% higher than in July 2023. The number of CVAs was 32% higher in July 2024 than July 2023 and 9% higher than in June 2024.

Tim Cooper, President of R3, the UK’s insolvency trade body, and a partner at Addleshaw Goddard LLP, said “Despite a decrease compared to last month, July’s corporate insolvency figures are the highest we’ve seen for this month since 2019, as a result of increases in Compulsory Liquidation, Administration, and Creditors’ Voluntary Liquidation (CVL) numbers compared to July 2023 and 2019.

“CVLs continue to be the most common corporate insolvency process, although their numbers have fallen compared to last month and July 2022. These processes are used predominantly by smaller businesses and their increased take-up compared to July of last year and July 2019 reflects the challenging trading conditions these businesses have operated in over the past four years.

“Meanwhile, the rise in administration numbers compared to last year is potentially positive for business rescue prospects and highlights the importance of early advice for exploring rescue plans, while the increase in Compulsory Liquidation figures shows the ongoing financial pressures creditors are facing.

“Recent improvements in market and economic conditions, driven mainly by a successful summer of sport and more stability for businesses following the General Election, have led to better trading conditions for retail, hospitality, and construction businesses. The construction sector is expected to receive a further boost through the government’s planned housing and infrastructure initiatives, although it will take time for them to have an impact.

“The improved economic and business climate should also result in greater acceptance and success of rescue proposals, and businesses of various sizes are showing a growing interest in Restructuring Plans, which is positive news for the profession.”

Chris Tate, Partner at Azets said “Company insolvencies in England and Wales were 2,191 in July 2024. This represents a decrease of 7% over June but the figures are remaining stubbornly high – 16% above that for July 2023.

“Despite recent encouraging signs, a great many businesses are still being pushed into insolvency while the challenges faced by many others are often proving to be almost insurmountable.

“The August interest rate reduction from 5.25% to 5%, being the first in over four years, was welcomed by business but will not be enough to significantly aid those businesses who are highly leveraged.

“The traditional summer slowdown, added to ongoing economic challenges – extra costs, supply chain issues, pay increases, cautious customer spending – may be a decisive factor for many companies.

“Typically, poor cashflow management is the biggest killer and many businesses are simply not forecasting future cashflow or acting quickly enough at the first signs of distress.

“Therefore, business leaders and directors must be alert to the signs that their business could be in trouble and must have that difficult conversation immediately, rather than when worries have spiralled. The earlier action is taken, the more options will be available,

“Business owners should avoid throwing good money after bad during downturns until they have sought specialist advice and considered all of their options, including potential restructuring and insolvency.

“Anecdotally, the businesses we are speaking to most are those which provide a discretionary spend service, indicating cautious business and consumer spending endures following the recent cost of living crisis.”