Business insolvencies figures fall by 1.8%

Latest quarterly figures from the Insolvency Service for England & Wales have indicated business insolvencies in Quarter 3 (Q3) fell 1.8% on the previous quarter,

The figures show between July and September 2023, there were 6,208 company insolvencies, made up of 4,965 creditors’ voluntary liquidations (CVLs), 735 compulsory liquidations, 466 administrations, 41 company voluntary arrangements (CVAs) and one receivership appointment. The number of insolvencies in Q3 2023 was 10% higher than Q3 2022.

Creditors’ voluntary liquidations (CVLs) were the most common company insolvency procedure (80% of cases), followed by compulsory liquidations (12% of cases), administrations (8% of cases) and company voluntary arrangements (CVAs; 1% of cases).

In Q3, CVLs accounted for 80% of all company insolvencies. The number of CVLs decreased by 4% from Q2 2023 but was 3% higher than during the same quarter last year, after seasonal adjustment. The numbers of CVLs in Q2 and Q3 2023 were the highest in the time series going back to 1960.

The number of compulsory liquidations in Q3 was 14% higher than in the previous quarter and 46% higher than in Q3 2022. Numbers have increased from record low levels seen while restrictions applied to the use of statutory demands and certain winding-up petitions (leading to compulsory liquidations).

The number of administrations in Q3 2023 was 11% higher than in Q2 2023, and 58% higher than in Q3 2022, after seasonal adjustment.Unlike other insolvency types, there was not a large decline in numbers of administrations at the start of the pandemic (Q2 2020). However, the number of administrations dropped in 2021 to the lowest annual level since 2003, before increasing in 2022 and so far in 2023. The number of administrations in Q3 2023 was similar to pre-pandemic levels.

The number of CVAs was 27% lower than in Q3 2023 than in Q2 2023, but 41% higher than Q3 2022. CVA numbers remain low compared to historical levels.

Christina Fitzgerald, President of R3, the UK’s insolvency and restructuring trade body said “A perfect storm of economic issues has led to the highest Q3 corporate insolvency figures in more than two decades. A combination of rising costs, director fatigue and increased creditor pressure mean more firms are turning to a corporate insolvency process to resolve their financial issues.”

“The key driver of the numbers is the rise in CVLs, which have reached their second highest figure on record and the highest number ever recorded in Q3. After years of battling through the pandemic, supply chain issues, increasing costs, rising inflation and requests for higher wages, many directors have simply had enough and are calling it a day while that choice is still theirs.”

“Compulsory liquidation numbers have reached a four year high – partly because of legislation preventing them and then making the winding-up petition threshold higher in the aftermath of the pandemic, but also because these firms are now under their own pressures, and are calling in debts in the hope of balancing their own books.”

“Trading conditions are tough right now. People are worried about money and reluctant to spend on anything other than the basics – and even then, are looking for the best deal possible – while costs are rising and the economy remains turbulent.”

“The Christmas period is a crucial time for a large number of firms – and this year could be make or break for many, especially those in retail and hospitality. It remains to be seen whether this year’s Christmas trading period will be the shot in the arm or the final blow for those that are struggling, and we may see a surge in insolvencies in the New Year if it’s the latter.”

Gareth Harris, Partner at RSM UK Restructuring Advisory, said “A small drop in insolvencies is a step in the right direction, with the majority of the fall from lower levels of ‘shut down’ creditors’ voluntary liquidations at the smaller end where the catch-up from Covid and Government support has been flushed out.”

“Sticky inflation, high interest rates and the cost of living are still making it tough for businesses to recover post-Covid, but we are entering a new phase, as business confidence recovers, we are already seeing an increase in corporate rescues and businesses bought from administration. High debt levels are really starting to bite but there is increased appetite to invest and save those businesses that ought to have a future.”

“The flip side of this is that whilst creditors have been supportive of businesses as they recover post-pandemic, this patience has now run out and the stance on forbearance has hardened, leading to an increase in compulsory liquidations, which points to the need to engage with all stakeholders to find a solution.”

“Whilst this is a small fall in overall insolvency numbers, we expect insolvencies to return to more normal long-term levels over the next few years.”

Jonathan Andrew, Global CEO of Bibby Financial Services said “Today’s insolvency figures clearly indicate that the combination of high interest rates, inflation and market uncertainty is undoubtedly beginning to bite. The cost-of-doing-business crisis is a very real threat to the UK’s economic recovery and, in particular, the UK’s SME community. The construction, hospitality and retail sectors have been the first to feel the pinch, but the full picture of SMEs’ viability will become clearer after Christmas. By then, we could be staring down the barrel of a gun for insolvencies. Without further support from both the private and public sectors, it’s possible we could see insolvencies exceed the last financial crisis.”

Brendan Clarkson, Business Advisory Director, at restructuring and insolvency firm, PKF GM, says that insufficient help from the Government and continued inflation have had devastating impacts on businesses’ bottom lines. He says that business owners who think they may be struggling should reach out for support as soon as possible. “The evidential tsunami of insolvencies is now becoming a reality,” says Brendan, “and there is no doubt that continued high inflation coupled with a lack of support from the Government since its own bailout post-Covid has led us to where we are.”

“The unfortunate fact is that businesses are being hit from a variety of angles – and all these blows have an effect on bottom lines. Firms are operating in a climate where consumers are reducing their spending on non-essential items, while at the same time, the costs of operating a business remain high. Inflation has been a problem for some time, and while this is expected to ease, it is still sitting higher than many have predicted.”

“Our message to company directors is straightforward: if you are at all worried about your business, seek advice. It is a difficult conversation to have, let alone to start, but the earlier you begin dealing with any issues, the more options you will have available and more time to make decisions while concerns are new, rather than when they have spiralled.”