Company insolvencies hit a record high since 1993, totalling 25,158, with creditors’ voluntary liquidations (CVLs) making up the majority.
The figure includes 20,577 CVLs, 2,827 compulsory liquidations, 1,567 administrations, 185 company voluntary arrangements (CVAs), and two receivership appointments.
The number of CVLs increased by 9 per cent from 2022 to a record high that dates back to 1960. There was an increase of 44 per cent in mandatory liquidations, 27 per cent in administrations, and 67 per cent in company voluntary arrangements (CVAs).
The greatest quarterly total since Q4 2008 was reached in Q4 2023 when insolvencies rose by 9 per cent from Q3 2023 and 14 per cent from Q4 2022.
Evelyn Partners partner in restructuring and recovery services Mark Ford says: “The 30-year high is undoubtedly a striking figure and it’s a stark reminder that, while in terms of interest rates and prices the general feeling might be that the worst is over, the trading environment for businesses in the UK remains pretty onerous.
“With growth indicators suggesting the UK is on the verge of a technical recession, the real economy is in far from rude health. So the cost increases, supply chain friction and volatile trading conditions experienced in the aftermath of the pandemic might have eased somewhat but a harsh and uncertain macroeconomic environment continues to make life difficult for business of all shapes and sizes.
“It’s worth pointing out that this record is in absolute terms: as a proportion of registered companies, the 2023 insolvency rate of 53.7 per 10,000 active companies was much lower than the peak of 94.8 during the 2008/09 recession.
“Even though interest rates are now widely expected to have peaked, the effects of higher borrowing costs are still feeding through the business cycle, and firms will still be adjusting to the impact of debt-servicing expenses that soared last year. That has particularly hit firms with debt burdens that increased during and after the pandemic, and it’s made refinancing impossible or punitively expensive for others. Access to funding remains difficult.
“Meanwhile, inflation might have moderated but many costs are still rising, particularly wage bills which many firms are struggling with 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 the depressing retail sales plunge in December showed. After all, consumer price inflation is still running at 4.0 per cent which means consumers’ nominal wage increases are being flattened in real terms.
“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 means 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. It also looks like the crisis in the Middle East might start to choke supply chains, lengthen lead times and possibly restrict the supply of imported materials and components.
“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 come almost totally 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, with little or no value left within these companies and no prospect of a business rescue.
“The number of administrations and CVAs were both higher than last year but lower than pre-pandemic levels suggesting that, despite a difficult environment it is not, yet, a busy time for business restructuring through formal insolvency processes. There is still a considerable debt maturity wave coming throughout 2024 and 2025 and those businesses looking to amend or extend their facilities may struggle to find terms even close to those they are currently enjoying.
“While some businesses are proactively seeking advice and help at an early stage, particularly with debt refinancing on the horizon 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.”
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