Business insolvencies rise by 6.6%

Latest figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales rose by 6.6% in January 2023.

The number of registered business insolvencies in January 2023 was 1,671 was 6.6% higher than in the same month in the previous year (1,567 in January 2022), and
11% higher than the number registered three years previously (pre-pandemic; 1,502 in January 2020).

The business insolvencies in January 2023 broke down as 1,382 CVLs, which is 2% higher than in January 2022 and 37% higher than in January 2020. 189 were compulsory liquidations, which is 52% higher than January 2022, but 36% lower than January 2020. 14 were CVAs, which is 8% higher than January 2022, but 56% lower than January 2020. There were 86 administrations, which is 21% higher than January 2022, but 49% lower than January 2020. There were no receivership appointments.

The increase in company insolvencies compared to January 2022 was driven by an increase in the number of compulsory liquidations and CVLs. The increase in compulsory liquidations is partly as a result of an increase in winding-up petitions presented by HMRC.

There were 189 compulsory liquidations in January 2023, which is 52% more than in January 2022, but 36% lower than in January 2020. Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus (COVID-19) pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

In January 2023 there were 1,382 Creditors’ Voluntary Liquidations (CVLs), 2% higher than in January 2022 and 37% higher than January 2020. Numbers of administrations and Company Voluntary Arrangements (CVAs) remained lower than before the pandemic but were higher than in January 2022.

Commenting on the figures, Christina Fitzgerald, President of R3, the insolvency and restructuring trade body, and a Partner at Edwin Coe LLP  said “The fall in personal insolvencies is a result of a drop in the number of people entering a Debt Relief Order and an Individual Voluntary Arrangement (IVA). It’s important to note that some IVA numbers for the last two days of January haven’t been included in this month’s figures, so the true picture of personal insolvencies in England and Wales for January isn’t yet available.”

“However, it’s worth noting that while bankruptcy numbers have increased monthly and yearly, they are still well below 2020 and 2019 levels. This suggests that while more people have entered a bankruptcy than last month, the cost-of-living crisis isn’t translating into an increase in the number of people needing this process to resolve their financial distress.”

“Despite this, money worries are still front of mind for many people in England and Wales, and as costs rise and wages continue to lag behind inflation, people are watching their outgoings like hawks.”

“Heating, eating and travelling are continuing to become more expensive, and there are a lot of people who are worried about their bills, their financial futures, and the economy and are cutting their costs wherever they can as a result.”

Mark Supperstone Managing Partner at Resolve said “This month’s statistics once again show that businesses face a plethora of challenges, with HMRC continuing to be a thorn in the side of many. Interestingly, administrations remain relatively low compared to pre-pandemic levels, however, I sense they will rise over the course of this year, particularly if inflationary pressures continue and there is no easing of the cost-of-living crisis. Whilst business owners are enterprising people, and many are striving to fight on, the question becomes how long they can continue with all of the pressures they are facing.”

“While we may well avoid a “technical recession” this year, the compounding issues of the cost of living crisis and energy prices will make it feel like a recession for many and lead to continuing difficulties ahead, especially for already struggling sectors like retail, hospitality and food services.”

“At ReSolve, we are seeing a rise in other types of restructuring work as a result of these challenges, with companies coming to us early to try to renegotiate lending facilities or explore other avenues to raise capital or sustain their business, such as a trade sale. My advice is always to tackle problems early. With more options on the table a business is much more likely to avoid insolvency.”

Nick O’Reilly, Director of Restructuring and Recovery at MHA believes that 2023 could see record insolvencies as stalling government support and economic strife are causing many businesses to fold he said “Growing insolvencies in January are no surprise, as HMRC is ramping up its recoveries and Compulsory Liquidations will rise in the coming months. Government backed loans during the pandemic managed to prop up struggling businesses but now many are defaulting. The government could help the situation by announcing its new energy support plan now rather than waiting for the Spring Budget.”

“Despite stronger than expected Q4 GDP results showing that we avoided a recession, it will not feel like that to many businesses. Inflation, higher interest rates, uncertainty over the government’s plan for energy support and supply chain issues have driven down consumer confidence. This uncertainty is the main reason for a large number of companies turning insolvent as they have not been able to invest and subsequently grow.”

“The government cannot wait until the spring budget to take away some of the uncertainty. If it announces its targeted energy support plans now rather than wait until March it could help businesses develop a medium to long term investment plan. By holding on until the budget day it is leaving companies unable to budget for what next year’s energy costs will look like.”