Company insolvencies remain elevated at 6,208 amid harsh business environment

Quarterly company insolvency statistics from the Insolvency Service today revealed that in the period July to September 2023:

• There were 6,208 (seasonally adjusted) registered company insolvencies, comprising 4,965 creditors’ voluntary liquidations, 735 compulsory liquidations, 466 administrations, 41 company voluntary arrangements and one receivership appointment.
• After seasonal adjustment, the number of company insolvencies in Q3 2023 was 2% lower than in Q2 2023, but 10% higher than in Q3 2022. The last two quarters saw the highest quarterly insolvency numbers since Q2 2009 and the highest numbers of CVLs since the start of the series in 1960.
• One in 191 active companies (at a rate of 52.4 per 10,000 active companies) entered insolvent liquidation between 1 October 2022 and 30 September 2023. This was an increase from the 46.9 per 10,000 active companies that entered liquidation in the 12 months ending 30 September 2022.

Mark Ford, partner in restructuring and recovery services at professional services firm Evelyn Partners, comments: “Despite a slight tick down in the third quarter from the second, company insolvencies have soared this year to levels not seen since the financial crisis of 2007/08 against a grim backdrop of continuing cost increases, a harsh and uncertain macroeconomic environment and continuing friction in supply chains and trading conditions.

“While insolvencies fell on the quarter they are significantly up on the year, and the first three quarters’ insolvency data does not paint a pretty picture of the challenges facing UK businesses as we head towards the end of 2023.

“Escalating interest rates have added to the cost of servicing the already increased debt burden of some firms, made refinancing impossible or punitively expensive for others, and generally made access to funding difficult. Meanwhile, high levels of inflation have sent costs through the roof for most businesses, and this is not just the case for raw materials and energy, and many imports, but also for wage bills as earnings growth has gathered pace.

“Unfortunately for firms in the retail and consumer space, while their wage bills are rising, demand for their products and services is in some cases not keeping pace as continuing high inflation means real household incomes are flatlining at best. Businesses in retail, hospitality and leisure also face the impact of reduced footfall resulting from recent industrial action around the country, and from altered working patterns which mean that commuting into towns and cities is still below pre-pandemic levels.

“As wage rises seem to have further to go, we can expect the costs environment for some firms to become more challenging, particularly but not exclusively in construction, retail, leisure and healthcare sectors.

“All this comes amid some persisting effects from the aftermath of the pandemic. Many businesses have emerged post-Covid significantly more vulnerable, having eaten through their cash reserves just to survive and are often saddled with increased liabilities in the form of Covid loans or landlord or HMRC arrears. Government support has ended, these liabilities must now be repaid, and weaker firms that had been propped up by Covid support or HMRC benevolence are now expiring at elevated levels as those lifelines recede into the past.

“The recent spike in total insolvencies has mainly come from company voluntary liquidations, rather than other insolvency processes, and this suggests that it is business directors taking the decision to liquidate their companies. It would appear that they are concluding that the game is up with the combination of legacy debt from the Covid pandemic and facing very strong financial headwinds and global uncertainty.

“While some businesses are proactively seeking advice and help at an early stage, unfortunately many are still leaving it too late, with, by then, deteriorating performance and impending repayment deadlines limiting options available.

“Early action and communication with key stakeholders, including banks and investment funds, is key to survival for businesses. If businesses are facing difficulties, the sooner they seek appropriate professional advice, the more options will be available and the greater the chances of the directors rescuing the business and saving jobs. Even if businesses aren’t missing scheduled payments or struggling to pay taxes on time, working capital and cash management should always be a focus and are normally capable of improvement.

“As well as a 12-month forecast, companies should prepare a rolling 13-week rolling cash flow forecast to ensure that they are aware of their cash utilisation and therefore have the tools to identify early any upcoming distress and then have the time available to implement a rescue or recovery plan.”