Business insolvencies fall by 9%

Latest figures from the Insolvency Service have shown that there were 1,953 business insolvencies in August 2024, a decrease by 9% in August 2024 compared to July’s total of 2,144, and decreased by 14.6% compared to August 2023’s figure of 2,286.

The business insolvencies consisted of 279 compulsory liquidations, 1,542 creditors’ voluntary liquidations (CVLs), 112 administrations and 20 company voluntary arrangements (CVAs). All types of company insolvency were lower than in July 2024.

CVLs accounted for 79% of all business insolvencies. The number of CVLs decreased by 7% from July 2024 and was 15% lower compared to the same month last year (August 2023) after seasonal adjustment.

The number of seasonally adjusted compulsory liquidations in August 2024 was 12% lower than in July 2024 but 6% higher than in August 2023. The number of administrations in August 2024 was 25% lower than in July 2024 and 40% lower than in August 2023 after seasonal adjustment.

Whilst the number of CVAs was 82% higher in August 2024 than August 2023 but 20% lower than in July 2024. Numbers remain low compared to historical levels. CVAs are not seasonally adjusted due to low volumes.

Tim Cooper, President of R3, the UK’s insolvency and restructuring trade body and a partner at Addleshaw Goddard LLP said “The monthly fall in corporate insolvency figures is likely to be a result of the traditional slowdown in appointments we see during August and shouldn’t distract from the fact that businesses are still struggling and many are still trying to manage high levels of debt at a time when trading conditions remain difficult.

“While the overall economic picture has improved, the market remains a challenging one, and managing costs is still very much a key concern for many directors. From a sectoral perspective, retail sales increased in the summer and construction output increased in July, but it remains to be seen whether this is enough to compensate for months of challenging trading conditions and whether the critical pre-Christmas trading period can provide the boost companies right across the economy badly need.

“Looking more broadly, now the Bank of England’s Monetary Policy Committee has made its decision on the rate of interest, firms may be prepared to look at their financing arrangements as many are likely to have been delaying this decision until after the announcement. However, there may be limited options available, and this could lead to more discussions around restructuring options for businesses seeking alternatives to a fresh injection of funds.

“Of these, Restructuring Plans remain an option sought by a range of businesses across the UK, and the profession is continuing to search for a means of making them accessible to SMEs. Some of the most recent case law would suggest progress is being made, which is positive news given current levels of corporate insolvency and the challenges faced by the business community.”

Daniel Staunton, Senior Associate in the Restructuring & Insolvency team at Kingsley Napley LLP, said “Today’s monthly insolvency statistics for August 2024 show that there were 1,953 registered company insolvencies, 9% lower than July and 15% lower than July 2023 but still higher than levels both during and pre-pandemic. The 9% decrease from July 2024 is still short of the biggest consecutive decrease of 12% seen in the last 3 years.

“August 2024 saw: 279 compulsory liquidations, 1,542 CVLs, 112 administrations, 20 CVAs. These figures were also all down from last month. CVLs continued to account for the majority of registered insolvencies at 79%. CVL numbers were down 7% from July figures, compulsory liquidations were down 12% from July, administrations down 25% from July and CVAs down 20% from July.

“Overall therefore the stats this month reveal a slight downward trend (ie an easing of insolvencies and insolvency situations) but the total number of insolvencies remains consistent with figures seen in the last 12 months including in 2024 so far. The figures are not indicative of better times ahead just yet. Inflation has fallen significantly from previous record highs in 2023 but still remains above the Bank of England bench rate of 2% at 2.2% in August. Unsurprisingly interests rates were therefore cut to 5% in August and the BoE held them at that level recently. That could soon begin to feed through with numbers showing a continued fall in September but I do not anticipate a massive drop – more likely the figures will be largely consistent with September 2023 i.e. I do not expect a new record to be set; the biggest consecutive decrease of 12% between consecutive months will not be beaten.

“Talk of tax hikes in the forthcoming Budget to ease pressures on the public purse, companies pausing spending decisions until the picture is clearer and the challenge of kick starting growth overall does not help to create a sense of confidence in the economic climate improving any time soon. What will not surprise anyone is that the worst hit sectors continue to be construction, retail and food and administrative service companies which has been the case for the last 12 months and has no sign of changing.”

Lucy Trott, Senior Associate, Stevens & Bolton said “The latest insolvency statistics support a maintenance of the status quo since the pandemic, revealing high levels of insolvencies and creditors’ voluntary liquidations (CVLs) in particular.

“CVLs are being used to shut down businesses which have reached the point of no return where directors are concerned about incurring any further liabilities, as opposed to situations where creditor pressure forces companies into compulsory liquidation. Anecdotally, we understand that CVLs are often being used by companies that have little to no assets which leaves any insolvency practitioner appointed little in the way of a ‘fighting fund’ to investigate and pursue any claims against third parties or directors, and could therefore be open to abuse.

 “However, directors should not see CVLs as a get out of jail free card because the liquidator will still need to file a report on directors’ conduct in the lead up to insolvency which, if adverse, could result in disqualification proceedings.

 “While the numbers of CVLs have now reached the highest levels on record, it is interesting to note that overall insolvency numbers are still nowhere near the levels seen during the 2008 financial crash. With interest rates predicted to drop again before Christmas, pressure on businesses should start to ease.”