Latest figures from the Insolvency Service have shown that there were 2,361 business insolvencies in England & Wales in June 2024, 16% higher than in May 2024 (2,040) and 17% higher than the same month in the previous year (2,016 in June 2023).
The insolvencies consisted of 302 compulsory liquidations, 1,866 creditors’ voluntary liquidations (CVLs), 170 administrations and 23 company voluntary arrangements (CVAs). All types of company insolvency were higher than in both June 2023 and May 2024.
CVLs accounted for 79% of all company insolvencies. The number of CVLs in June 2024 was 16% higher than in May 2024 and 16% higher than June 2023.
The number of compulsory liquidations was 10% higher than in May 2024 and 19% higher than in June 2023. The number of administrations was 30% higher than in May 2024 and 22% higher than in June 2023.
The number of CVAs was 64% higher than June 2023 and 21% higher than in May 2024. Numbers remain low compared to historical levels. CVAs are not seasonally adjusted due to low volumes.
The five industries that experienced the highest number of insolvencies in the 12 months to May 2024 were Construction (4,287, 17% of cases) followed by Wholesale and retail trade; repair of motor vehicles and motorcycles (3,811, 16% of cases)
Accommodation and food service activities was third in the list (3,752, 15% of cases) next was Administrative and support service activities (2,363, 10% of cases) followed by Professional, scientific and technical activities (1,969, 8% of cases).
Tom Russell, Vice President of R3, the UK’s insolvency and restructuring trade body said “The monthly and yearly increase in corporate insolvencies is driven by an increase in Creditors’ Voluntary Liquidations – a process usually used by smaller businesses, and which is often driven by cashflow problems or difficulties with access to finance. Compulsory liquidation numbers have also risen to their second-highest level since January 2021 and suggests that creditors are taking a much tougher stance this financial year.
“But there are some positive signs in today’s figures – Company Voluntary Arrangement and Administration numbers have increased compared to last month, and Administration numbers are higher than this time last year and in June 2019. The profession will always try to rescue businesses wherever it possibly can, and this trend suggests that there are an increasing number of businesses for whom this is an option and whose secured creditors are willing to support rescue proposals.
“The reality is that businesses are still trading amidst high costs and cautious consumer spending, and despite recent more encouraging economic data pointing to increasing economic growth and falling inflation, the trading environment is still challenging for many businesses, and it seems that the economic improvement has come too late for some.
“While retail sales rebounded in May, they are still down year-on-year, and restaurant spending fell again last month as consumers continued to be cautious with discretionary spending to save money. These sectors have struggled since the start of the year and have yet to bounce back from a disappointing pre-Christmas trading period, so we may see insolvency numbers increase in the Autumn if trading conditions don’t improve.
“There was positive news for the construction sector, which saw growth in May after a disappointing start to 2024 and a delay in new work at the end of last year. While the uncertainty the General Election will have brought this sector is likely to impact firms and output in the short-term, the new Government’s pledges to invest in infrastructure and encourage housebuilding could reinvigorate two key markets for this industry if they come to fruition.
“The statistics show that levels of CVLs have been high for some time now – CVLs are typically the insolvency procedure used by SMEs. The new Government has committed to a number of new policies during the General Election campaign which are designed to boost the business community – especially SMEs.
“Their pledge to reform business rates to be fairer may benefit businesses in the retail and hospitality sector, while plans to introduce legislation to tackle late payments, if effective, will improve cashflow for businesses and free up resources that will potentially allow firms to focus on investment and growth instead of chasing money they are owed and managing cashflow. These measures will take time to introduce and may come too late to help those who are currently struggling.
“It’s also worth noting that many businesses continue to be optimistic about the future, with lower inflation and the prospect of higher sales and profits boosting their confidence about the coming months, but we’ve yet to see the full impact of the General Election on the economy and purchasing decisions, and despite their optimism about the future, organisations remain concerned about customer demand, staff turnover and meeting their regulatory requirements.”
Jonathan Andrew, CEO of Bibby Financial Services said “Despite confidence emerging in some sectors, today’s figures reflect a challenging economic environment that continues to put UK businesses under genuine strain. For SMEs in particular, we can see a clear divide between those businesses able to weather the challenges of recent years, and those who are being pushed to the brink by supply chain disruption, late payment, and bad debt.
“While there’s no silver bullet to fix this, it’s critical that viable SMEs don’t fall through the cracks as things begin to stabilise. Access to finance for SMEs is a particular area that requires attention from the new Government. A starting point should be to reform and strengthen the underused Bank Referral Scheme. Critically, this will enable SMEs to access a wider array of financing options to help them to overcome challenges associated with cashflow pressures due to late payment or protracted default.”
Oliver Collinge, Director at restructuring and insolvency firm, PKF Littlejohn Advisory said “The sector has been one of the worst hit by cost inflation over the last few years; whilst this has reduced considerably this year, the impact on balance sheets lingers. Energy prices also remain far higher than they were before 2022. In addition, although the sector has experienced stronger demand this year driven by real wages growth, the poor spring and summer weather has dampened this effect. The combination of these factors means that many businesses in the sector are still struggling.
“It’s crucial that businesses act early and seek advice if they are struggling, or if they expect their cashflow to be restricted in the coming months. The earlier they act, the more options they will have to secure the long-term survival of their business.”
Lucy Trott, Restructuring and Insolvency Expert at Stevens & Bolton said “The insolvency statistics released today demonstrate that high levels of company insolvencies have become the “new normal” post-pandemic. It was widely anticipated that we would see a vast “wave” of insolvencies in the immediate aftermath of the pandemic following the withdrawal of the government support measures. What we have seen instead is a steady stream of increased insolvencies, and driven by high numbers of creditors’ voluntary liquidations, which reflects the tough trading conditions since the pandemic and directors taking action to close businesses due to a number of factors rather than insolvencies resulting purely from creditor pressure.
“No doubt the cost-of-living crisis, sticky inflation, and high interest rates over a prolonged period have all had a part to play in the demise of many businesses which have struggled to adapt to a world of reduced profit margins, increased costs and increasing wage bills. Many businesses reliant on external lending will have had to refinance since interest rates spiked following the disastrous mini-budget of 2022 and will be feeling the strain of substantially higher interest payments over a number of years.
“These difficult conditions show signs of easing. It is now a question of “when” rather than “if” interest rates will come down, which could perhaps explain the recently renewed optimism for businesses and some of the volatility we have seen in recent insolvency numbers. However, for businesses that have endured a multitude of financial strains since the pandemic the path to recovery could simply be too long. Companies have been forced to adapt their business models to adjust to the many financial pressures in recent years; in light of the numerous difficulties, it is not surprising that insolvency levels remain high.”
