UK businesses three times more likely to enter voluntary liquidation than ever before

More than a decade of challenges, such as austerity, Covid, wars, and financial crises, means UK business leaders are increasingly choosing to liquidate their companies rather than being forced to, according to a Freedom of Information (FOI) request by Quadient (Euronext Paris: QDT), a global automation platform powering secure and sustainable business connections.

A FOI request to The Insolvency Service exploring data from 1960 to 2023, found that the proportion of voluntary liquidations – i.e. shareholders of a company choosing to close their business instead of being forced to by the courts – has spiralled since 2012. Until then, the ratio of voluntary to compulsory liquidation remained at a steady average of 2:1. But in the last 12 years the share of voluntary liquidations has significantly increased, to 7:1 in 2023 and peaking at more than 25:1 in 2021. Indeed, in 2023 one in every 272 UK businesses entered voluntary liquidation – the highest proportion recorded this century. Voluntary liquidations are a clear sign that businesses are choosing to end on their own terms, but the past decade shows that this is spiralling out of control.

“There is no hard-and-fast rule on when a business enters voluntary liquidation,” said Joey Glazer, director of AP Automation, at Quadient. “These statistics cover many different cases, from operations with decades or centuries of history that could no longer control their finances, to one- or two-person bands that only needed to exist for a limited time. What’s certain is that, despite the name, many of these so-called “voluntary” liquidations will be anything but. Instead, people will be walking away because of external factors beyond their control, while seeking to retain whatever ownership of assets they can. For these businesses, and others looking to avoid the same fate, resilience to outside pressures is key. Businesses need to quickly spot when their finances might be getting into trouble, and ensure they both have fast cash flow and that their accounts are completely in order.”

The Insolvency Service defines a compulsory liquidation as “a winding-up order obtained from the court by a creditor, shareholder or director”, whereas a creditors’ voluntary liquidation is where “shareholders of a company can themselves pass a resolution that the company be wound up voluntarily”.

The total number of insolvencies in the UK has been steadily increasing alongside the number of businesses, from 1,563 in 1960 to 25,158 in 2023. In 2012, the ratio of voluntary to compulsory liquidations reached its highest level to date, of 3:1. However, unlike previous occasions where the ratio spiked it didn’t recover. Instead, there was a steady rise to 4:1 in 2019, then a dramatic surge to 7:1 in 2020 and the 25:1 peak in 2021, with the pandemic a likely culprit.

While the total number of insolvencies has been steadily increasing, there have been notable spikes.

• In 1991 insolvencies spiked at 21,827 and reached 24,425 in 1992. These were likely due to the ongoing early 1990s recession, which peaked with Black Wednesday in 1992.
• In 2022 and 2023 the total number of insolvencies soared to 22,123 and 25,158 respectively. These were likely caused by the Ukraine War and ongoing cost-of-living crisis.

“Business leaders need to take control of their finances, so they have the flexibility to deal with the unexpected,” continued Glazer. “Tools like AI and automation are essential for reducing precious time and resources being spent on manual finance processes. And particularly as cash is king, automating financial processes means payments can be collected faster and leaders have an accurate, real-time view of their financial health. By optimising the finance function, businesses will have an awareness of how external factors might impact their bottom line and so can act accordingly. Primed with the latest technologies, businesses can face sudden external events with much greater confidence.”