The latest Insolvency Service figures for April 2024 show there was a startling rise in Company Insolvencies.
England and Wales witnessed a significant rise in company insolvencies, marking an 18.4% increase from March 2024 and a 5.4% uptick compared to April 2023.
The total number of registered business insolvencies for the month reached 2,177, comprising 300 compulsory liquidations, 1,715 creditors’ voluntary liquidations (CVLs), 144 administrations, and 18 company voluntary arrangements (CVAs).
CVLs accounted for 79% of all company insolvencies. The number of CVLs increased by 18% from March 2024 and was 17% higher than during the same month last year (April 2023), after seasonal adjustment. 2023 saw the highest annual number of CVLs since the start of the time series in 1960, continuing the year-on-year increases in CVL numbers seen since 2021. CVLs had been increasing at approximately 10% per year between 2017 and 2019, before decreasing to the lowest levels seen since 2007 during the Covid-19 pandemic.
The number of seasonally adjusted compulsory liquidations was 11% higher than in March 2024 and 21% higher than in April 2023. The number of compulsory liquidations in 2023 increased by 44% from 2022, but remained 4% lower than 2019 (pre-pandemic levels). Numbers have increased from record low levels seen in 2020 and 2021 while restrictions applied to the use of statutory demands and certain winding-up petitions (leading to compulsory liquidations).
Companies in Administration rises
The number of administrations was 36% higher than in March 2024 and 25% higher than in April 2023, after seasonal adjustment. The numbers of administrations increased during 2022 and 2023 from an 18-year annual low number seen during the COVID-19 pandemic in 2021. Current levels are similar to those seen between 2015 and 2019.
The number of CVAs was 50% higher in April 2024 than April 2023 and twice as many as in March 2024. Numbers remain low compared to historical levels. CVAs are not seasonally adjusted due to low volumes.
The number of CVAs in 2023 was 68% higher than in 2022 which saw the lowest ever annual total in the time series going back to 1993, however the number in 2023 remained approximately half of 2015 to 2019 levels.
The five industries (in accordance with SIC 2007) that experienced the highest number of insolvencies in the 12 months to March 2024 were: construction (4,274, 17% of cases with industry captured), second was wholesale and retail trade; repair of motor vehicles and motorcycles (3,825, 16% of cases with industry captured). Accommodation and food service activities (3,766, 15% of cases with industry captured). Fourth was Administrative and support service activities (2,312, 9% of cases with industry captured), In fifth place was Professional, scientific and technical activities (1,979, 8% of cases with industry captured);
Tim Cooper, President of R3, the UK’s insolvency and restructuring trade body, and a Partner at Addleshaw Goddard said “The last year and the last quarter have seen corporate insolvency numbers reach a level not seen since the previous recession in 2008-09. The fact the UK had entered a recession (albeit relatively modest) during the last two quarters of 2023 was a contributing factor, however the recession would appear to have been short lived with a better than expected growth in GDP of 0.6% between January and March which has largely cancelled out the recession itself.
“Against this backdrop, inflation is falling and the Bank of England have held interest rates for a further month, with market speculation abundant as to whether and when a cut is on the cards. Corporate registrations are at a record high, so there are factors at play which suggest some return of business confidence, if not consumer confidence with cost-of-living pressures still playing their part. Working out what is going on is therefore becoming more nuanced than simply blaming the pandemic, cost of living, inflation and interest rates.
“The annual and monthly increases in corporate insolvencies shown in the figures published today have been driven by an increase in all types of corporate insolvency process, but the key areas which stand out are the increases in Creditors’ Voluntary Liquidations (CVLs) most of which relate to small and medium sized companies – the process which has seen the largest rise (after a brief decline in March) – and administrations.
“One factor in the increase in CVLs is likely to be down to directors closing their businesses down at the end of the financial year – either because they believe the market won’t improve or because they’ve simply had enough after four tough years. Another possibility could be difficulties in small businesses in distress being able to access more complex and more expensive forms of restructuring, and having to resort to liquidation as a means of dealing with unserviceable debt.
“While the increase in administrations isn’t by a large number, it does suggest that there are an increasing volume of businesses that could potentially be rescued rather than wound-up and as the economy recovers we would anticipate this rise will continue. We will need to keep a close eye on this, as the trendline is upwards and the causes are not clear against a backdrop of an apparent increase in business confidence and the so-called ‘green shoots’ of economic recovery. One would expect liquidations to level out or decline, as rescue mechanisms begin to replace closures – but we shall have to wait and see.
“The sectoral data we have available shows that the construction, retail and hospitality sectors continue to experience the highest insolvencies this year so far. Retail and hospitality businesses have been especially affected by consumers’ wariness about spending money, poor weather in February and a tough pre-Christmas trading period. Issues with the weather will also have affected the construction industry, as will the fall in new work it has suffered from since the start of the year.
“Despite the difficult business climate over the period these figures cover, there is some cause for optimism. The economy is growing again and business and consumer confidence are both improving, and while businesses remain concerned about costs and consumer demand, the mood is generally more positive with a significant increase in new company registrations being reported by Companies House.”
