Credit, Collections & Insolvency News
Annual figures from the Insolvency Service for England & Wales have shown that total number of business insolvencies registered in 2023 was 25,158 which was the highest number since 1993 and 14% higher than in 2022.
The business insolvencies, comprised of 20,577 creditors’ voluntary liquidations (CVLs), 2,827 compulsory liquidations, 1,567 administrations, 185 company voluntary arrangements (CVAs) and two receivership appointments.
Creditors’ voluntary liquidations (CVLs) were the most common company insolvency procedure (82% of cases), followed by compulsory liquidations (11% of cases), administrations (6% of cases) and company voluntary arrangements (CVAs; 1% of cases). While creditors’ voluntary liquidations (CVLs) were also the most common company insolvency procedure before the coronavirus pandemic, the relative proportions of insolvency types have changed over time. In 2019, CVLs accounted for 70% of cases, followed by compulsory liquidations (17% of cases), administrations (11% of cases) and CVAs (2% of cases).
During the coronavirus pandemic in 2020 and 2021, when government support measures were in place, company insolvency numbers were low compared to historical levels. CVL numbers then increased in 2022, exceeding pre-pandemic levels, while compulsory liquidation and administration numbers remained lower. Numbers of all insolvency types then increased in 2023.
The number of compulsory liquidations in 2023 increased by 44% from 2022, but remained 4% lower than 2019 (pre-pandemic levels).
The number of compulsory liquidations in Q4 2023 was 6% higher than in the previous quarter and 6% higher than in Q4 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). These temporary measures ended on 31 March 2022. The number of compulsory liquidations in Q4 2023 was similar to pre-pandemic levels.
The number of administrations in 2023 was 27% higher than in 2022, but 14% lower than in 2019. 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 2023. The number of administrations in 2023 was slightly lower than pre-pandemic levels.
The number of CVAs in 2023 was 67% higher than in 2022 which were the lowest ever annual total in the time series going back to 1993, but 2023 volumes were still 47% lower than in 2019.
Nicky Fisher, President of R3, the UK’s insolvency and restructuring trade body said “The last year has seen a rising tide of corporate insolvencies. A combination of increased costs, cautious spending, creditor pressure, and the post-pandemic hangover have seen more businesses enter a corporate insolvency process to help address their financial issues than last year. Unless the economic picture improves, costs come down and people start spending, it seems likely that insolvency numbers will remain high this year.
“Increases in Creditors’ Voluntary Liquidations (CVLs), Compulsory Liquidations and administrations have driven corporate insolvencies to a 30-year high.
“More directors have turned to CVLs this year compared to last year as a combination of fatigue, pressure from creditors and tough trading conditions have led to them shutting their doors while the decision to do so is theirs to make, and pushed the number for these insolvency processes to the highest quarterly total in more than 60 years.
“Similar factors are driving the increase in administrations, but the harsh business climate has to be the biggest. The upsurge in consumer spending that many businesses had been hoping for since the end of lockdown hasn’t happened, or at least hasn’t been sustained, and the firms who were hanging on and hoping for it have simply run out of time and money.
“Compulsory Liquidation numbers are also substantially higher than in 2022 but are still slightly below pre-pandemic levels. However, creditors are being more proactive in chasing the debts they are owed as they have their own financial pressures to manage and their own debts to pay, while 2022’s Compulsory Liquidation numbers were suppressed by the tail-end of the Government’s support measures, which will have affected numbers in the first quarter of that year.
Nick O’Reilly, former R3 President and Restructuring and Recovery Director at MHA said “Throughout 2023 we saw a steady rise in the number of reported corporate and personal insolvencies which we saw reflected on the ground in our work. This growth has been primarily driven by smaller businesses having difficulty paying back government COVID support leading to an uptick in the number of Creditor’s Voluntary Liquidations.
“However, as we head further into 2024, we are likely to see more large-scale administrations compared to 2022 and 2023, as the impact of high interest rates begins to bite even further. This year is likely to be the busiest 12 months for insolvencies since 1993 as similar challenging conditions to 2023 will prevail — ongoing conflicts in Ukraine and the Middle East, falling house prices, still low levels of consumer confidence — combined with the lack of availability of interest payment holidays. This is highly likely to lead to some high-profile casualties.”
Daniel Staunton, Senior Associate at law firm Kingsley Napley said “Numbers will continue to rise into 2024, as the number of companies going insolvent just keeps on rising.
“Whilst some companies may have caught a breath from busy Christmas trading and huff and puff into February, more will splutter out in Q2,” he added. “We may well see inflation creep back up again and the Bank of England pressured to act on the base rate.”