Business insolvencies rise 27%

Latest figures from the Insolvency Service have shown that the number of business insolvencies in England & Wales for June 2023 was 2,163, this was 27% higher than in the same month in the previous year (1,698 in June 2022).

The increase business insolvencies compared to the same month last year was mostly driven by an increase in the number of CVLs, which are the most common type of company insolvency, although the number of compulsory liquidations, administrations and CVAs also increased in comparison to the same month last year. The increase in compulsory liquidations is partly as a result of an increase in winding-up petitions presented by HMRC.

The data showed that there were 260 compulsory liquidations in June 2023, 77% higher than in June 2022 The figures showed that there were 1,759 Creditors’ Voluntary Liquidations (CVLs), 21% higher than in June 2022. Numbers of administrations and Company Voluntary Arrangements (CVAs) were also higher than in June 2022.

Of the 2,163 registered business insolvencies, there were 1,759 CVLs, which is 21% higher than in June 2022. 260 were compulsory liquidations, which is 77% higher than June 2022. 14 were CVAs, which is 75% higher than June 2022. There were 130 administrations, which is 44% higher than June 2022 and no receivership appointments.

Business insolvencies decreased by 15.3% in June 2023 to a total of 2,163 compared to May’s total of 2,553, and increased by 27.4% compared to June 2022’s figure of 1,698 but increased by 79.4% from June 2021’s total of 1,206, by 191.9% from June 2020’s total of 741, and 47.5% compared to June 2019 (1,466).

Commenting on the figures, Nicky Fisher, President of R3, the UK’s insolvency and restructuring trade body, said “The monthly fall in corporate insolvencies is driven by a reduction in Creditors’ Voluntary Liquidations, but numbers for this process are still higher than they were pre-pandemic as a sizeable number of directors are still choosing to close their businesses while the choice is still theirs to make.”

“Despite the monthly fall in corporate insolvencies, levels are higher than they were this time last year – and well above what they were this time two, three and four years ago, as the hangover from the pandemic combines with a challenging trading climate caused by a number of economic issues.”

“Firms are trading in a time of cautious consumer spending and rising costs, which are hitting margins and profits hard.Directors expect costs and wages to rise further as the year goes on, and if these don’t translate into more demands for goods and services, it could be the final blow for those businesses that are just managing to survive.”

“Rising interest rates are another potential challenge, as that will make the cost of borrowing more expensive and may price some firms out of the survival funding they’ll need. Given the economic and business climate, we urge directors to be alert to the signs of financial distress, and seek advice if they find themselves facing issues like rising stock levels, problems with cashflow or difficulties paying staff, taxes or suppliers.

Mark Supperstone, Managing Partner at ReSolve, said “Today’s statistics show that many businesses are still struggling to see the light at the end of the tunnel as high levels of insolvency continue. Many are having to seek urgent help and advice in some capacity. At ReSolve, we are in discussions with business across a multitude of sectors, including sport, technology, energy, retail and leisure which shows how widespread the impacts of the difficult macro environment are. We are also seeing increasingly larger businesses struggling due to the rising cost of debt and the ever-rising interest rates are not going to help ease these pressures any time soon.”

“Nevertheless, if businesses act fast to seek advice as soon as they become cash constrained, or see a downturn in trading, then there are usually options available which will enable them to keep trading or to realise value. As a rule of thumb, the earlier our clients seek help, the more options there are. Our focus is on helping businesses find solid solutions and to move forward in the best way possible.”

Gareth Harris, partner at RSM UK Restructuring Advisory, said “The monthly figures confirm what we are seeing on the ground – that UK corporates are struggling to cope with a challenging combination of rising interest rates, sticky inflation, higher wage expectations whilst recovering from a hangover of Covid debt. The disappointingly high level of both types of liquidation processes shows that HMRC is increasingly active, and that many directors are facing the very difficult decision to shut their businesses – with the construction and retail sectors being hit hardest.”

“Despite the levels of insolvency being higher than historic averages we do believe there is some room for optimism. By the end of 2023, we predict overall insolvency numbers will decrease by around 11-16% in Q4 2023. The drop is likely to come mainly from a fall in ‘shut down’ Creditors’ Voluntary Liquidations where the catch-up from low points of Covid and Government support will largely be flushed out.”

Nick O’Reilly, Director of Restructuring and Recovery at MHA said “Insolvencies will continue to rise throughout 2023 as the effects of Covid-19 recovery loans continue to bite businesses and the economy. Businesses previously propped up by the loans are failing in greater numbers, particularly hospitality, construction and real estate, which will be the biggest victims of business insolvencies this year.”

“The fall in customer demand, an economic downturn and increased interest rate of 5%, on top of high inflation and the cost of living crisis, has meant businesses and small to medium enterprises (SMEs) have had little time to build a healthy cash reserve or recover from the post-pandemic impact. Many are considering closing or have closed their doors for good, and its crucial government initiatives are introduced quickly to help stem the flow.”

“Reforms within the business rate regime are urgently needed to encourage businesses to invest, grow and innovate. The Non-Domestic Rating Bill1 will introduce new business rates for property and building improvements and provide much-needed relief and tax breaks for the construction sector, however sectors including leisure and hospitality continue to be left in the lurch.”

“Restructuring the Covid-19 support repayment terms will allow business to have more time to pay back and allow them to internally restructure their commitments.  Additional Government assistance for companies with outstanding Covid-19 loans will further help them allocate resources efficiently and survive during this economic downturn.”

Quarterly corporate insolvencies in the UK