April sees drop in company insolvencies

The 1,685 figure was 15% lower than the 1,988 seen during the same month the previous year, but higher than the levels seen while the government support measures were in place in response to the Covid-19 pandemic and the pre-pandemic numbers.  

Month-on-month, corporate insolvencies decreased by 31.8% in April 2023. Responding to this, R3 president Nicky Fisher said: “Despite the monthly fall in corporate insolvency figures, total numbers are still above pre-pandemic levels, and the key reason for this is that creditors’ voluntary liquidations (CVLs) are higher than they were in 2019. 

“After three years of disturbed trading and a choppy economy, it’s clear that directors have simply had enough or have realised the time is right to shut down their business while the choice is still theirs to make. 

“The business climate is still tough. Firms right across the supply chain are trying to manage increased costs without passing this on to their customers, and with inflation remaining sticky, this is likely to become ever more challenging as the year progresses. 

“We are also waiting to see the real impact of rising interest rates – and may not see the cumulative impact of the rate rises until later in the year as fixed term credit arrangements come to an end.  

“Businesses could potentially face a credit cost shock just as inflation is predicted to ease, and could mean we’re looking at a one-step forward, one-step back situation, rather than a sustained improvement in the trading climate. 

“Given this, and the ongoing challenges businesses face, we urge directors to remain vigilant and act if they see any signs it might be distressed, or if they start to worry about it or its financial health.” 

Jump in compulsory liquidation, CVA and administration numbers as CVLs drop 

Despite the overall drop in year-on-year company insolvencies, most types of insolvency saw an increase. The 183 compulsory liquidations recorded in the month, for example, were almost twice the number seen during the same month in 2022 – while the number of creditor voluntary arrangements (CVAs) and administrations also went up – increasing by 20% and eight percent respectively.  

Reflecting on these increases, ReSolve managing partner Mark Supperstone said these figures highlight companies are still facing many ongoing issues. He added: “Recent banking crises have made it more difficult for companies to secure investment, leading to challenges for businesses across a range of sectors.  

“The easy access to finance witnessed over the last decade has certainly ended, meaning businesses will have to focus more on cash flow and profitability to remain solvent.” 

Focusing on the spike in compulsory liquidations, Kroll managing director Sarah Rayment said: “Perhaps the most interesting area is the spike in Compulsory Liquidations and the increasing activity from HMRC.  

“HMRC is a preferential creditor, which ultimately means it has more skin in the game. We have seen more winding up orders over the past six months, which shows HMRC is beginning to be less lenient than it was during the pandemic. 

“There are a number of recent business surveys showing increasing confidence among businesses. While this is encouraging, we are not out of the woods yet and there are sectors that are more exposed who will have to navigate the challenges ahead.” 

The biggest factor for the year-on-year drop was the number of CVLs to have taken place in the month, with the 1,368 figure being 23% lower than in April 2022. Reflecting on this, RSM UK Restructuring Advisory partner Gareth Harris said he anticipates CVLs will reduce significantly.  

He added: “We still expect that HMRC will continue to be more aggressive in its recovery actions, and therefore compulsory liquidations will remain relatively high. We also anticipate that there will be a relatively long tail to the current economic issues for those businesses carrying high levels of debt, as the costs of such borrowing are increasing sharply. 

“This is likely to mean increasing numbers of restructuring processes, and potentially a rise in the level of administrations as part of a solution or rescue process. Hard work by management teams, innovative solutions and creative funders will be required in combination to allow survival for these businesses carrying too much legacy debt.” 

Individual insolvency numbers

As for individual insolvencies, 2,384 debt relief orders (DROs) and 531 bankruptcies took place in England and Wales in April 2023. Bankruptcies, overall, were five percent lower than in April 2022 – while the average number of bankruptcies to have taken place over the past 12 months was at 562 a month, 60% lower than the 2019 pre-pandemic average of 1,395.  

Of the 531 bankruptcies recorded last month, 418 were debtor applications and 113 were creditor petitions – with this being 10% lower and 18% higher, respectively, when compared to the same period in 2022.  

Turning to DROs, the 2,384 recorded in April 2023 was 24% higher than in April 2022. As for individual voluntary arrangements (IVAs), an average of 6,336 were registered per month in the three-month period ending in April 2023 – 16% lower than during the same period in 2022, while the total number of IVAs recorded across 2023 have so far been lower than during 2022, which had a record high of IVAs.  

Responding to the individual insolvency numbers, Fisher said: “When it comes to personal insolvencies, the monthly and yearly drop in the figures we’ve seen today has been driven by a reduction in numbers for all forms of personal insolvency process, but notably in IVAs and DROs. 

“However, we must treat the fall we’ve seen in the personal insolvency figures published today with some caution as they will reflect a changing debt solutions market where options for individuals might not be as readily available as they might be, and there could be a backlog of cases building up as a result. 

“Money worries remain a key concern for many people across England and Wales. The costs of energy and food remain a serious challenge, people are borrowing more and more as they attempt to cover their expenses, and are cautious about spending money on anything that isn’t essential.” 

Contrasting picture in Scotland and Northern Ireland

In Scotland, 114 company insolvencies were registered in April 2023 – 24% higher than the number in during the same month in 2022. These were comprised of 41 compulsory liquidations, 64 CVLs and nine administrations.  

In Northern Ireland, eight company insolvencies were registered – 38% lower than in April 2022. These were comprised of four CVLs, two compulsory liquidations and two administrations.  

As for individual insolvencies, 110 were reported in the country last month – 32% lower than during the same month last year. These consisted of 85 IVAs, 18 DROs and seven bankruptcies.