Business climate remains challenging despite company insolvency fall

Overall, the 2,006-figure dropped by six percent when compared to April and fell by 21% when compared to the same period the previous year. Of this figure, 1,590 were creditors’ voluntary liquidations (CVLs), with there also being 271 compulsory liquidations, 126 administrations and 19 company voluntary arrangements (CVAs).  

Reflecting on this, R3 president Tim Cooper said: “The business climate remains challenging due to a variety of short and long-term issues.  

“Inflation levels, cautious consumer spending, and the costs of energy and fuel have been affecting businesses for months, while shorter-term issues like the rain we experienced in April and May will have hit firms in the construction, retail and hospitality sectors.  

“Retail and hospitality will have seen a lower footfall as a result of the wet weather over the last couple of months, and this will have been another blow after a tough start to the year, a poor Christmas trading period and the longer-term impact of the people spending less.  

“However, these industries will be hopeful the Euros will bring an increase in footfall and spending and England and Scotland, which may help make up for a slow start to the year.  

“The rain will have also caused delays and disruption to construction projects, which will create additional issues for a sector that had seen a reduction in new work at the end of last year and the start of this one. 

“Another factor affecting businesses in the wait for the Monetary Policy Commitee’s decision on the Bank Rate of interest as the impact this announcement has on everything from leasehold agreements to foreign exchange rates have resulted on firms choosing to enter or choosing to delay entering an insolvency or restructuring process depending on the timings of their current arrangements.

“The Committee’s decision is also likely to affect businesses in the future, given the impact it has on a range of areas of commercial and international finance.” 

Mark Supperstone of ReSolve added: “The statistics demonstrate that, although company insolvency rates continue to remain high in general, the brief alleviation seen in March of this year was not an anomaly.  

“Although this is naturally a cause for optimism, it is worth noting that high borrowing costs and wage growth continue to be obstacles in the SME trading environment, and as such the volatility in recent months is likely to persist for some time.  

“There is also an upcoming election and summer is on the horizon, therefor it may be tempting for businesses to hold steady and delay any decision making until the dust settles following the election and summer months.  

“There’s the prospect of a drop in interest rates as well, which is a cause for further optimism, however this is potentially still some way off and will likely take time to materially effect change as far as company insolvencies are concerned.  

“As such, we would expect high insolvency levels to continue to persist for the remainder of the calendar year, with the prospect of a plateau or fall in insolvencies in the first quarter of 2025.”  

Continuing the trend, individual insolvencies in England and Wales fell by four percent month-on-month – although it was three percent when compared to the same period in 2023.  

Of the overall 9,266 figure, the majority – 4,946 – were individual voluntary arrangements (IVAs), with 3,716 being debt relief orders (DROs) and 604 being bankruptcies. 

Cooper said: “It’s also clear the cost of living is continuing to hit consumers. Paying for the essentials remains a challenge as food, fuel and energy prices continue to rise, and while inflation is coming down and the energy price cap is set to fall from July, costs still remain high for households, with energy prices well above what they were three years ago.  

“As a result, people are still looking to save money – either to meet ongoing costs or to spend later on in the year.” 

Turning to Scotland, there were 118 company insolvencies taking place during the month – 22% higher than the number in May 2023. This was comprised of 71 CVLs, 43 compulsory liquidations and four administrations. 

Northern Ireland, meanwhile, recorded 44 company insolvencies registered in May – 300% higher than in May 2023. This was comprised of 22 compulsory liquidations, 20 CVLs and two CVAs.  

In contrast, individual insolvencies fell by 26% year-on-year to 143 individual insolvencies. This was comprised of 114 IVAs, 17 bankruptcies and 12 DROs.