“Grim outlook” for businesses as insolvencies hit 14-year high

In total, 6,342 were registered between April and June – comprising 5,240 creditors’ voluntary liquidations (CVLs), 637 compulsory liquidations, 409 administrations and 56 company voluntary arrangements (CVAs). Overall, this is nine percent higher than in the first quarter of 2023 and 13% higher than during the same period last year.  

In addition to this, the number of CVLs that took place was at its highest quarterly level since the start of the series in 1960, while compulsory liquidations also increased – but remained slightly lower than the levels seen prior to the Covid-19 pandemic.  

Reflecting on this, Colin Haig – partner and national head of restructuring at Azets – says the latest figures present a “grim outlook” for British businesses, explaining the “lingering aftermath of the pandemic” has been compounded by “mounting debt burdens, supply chain disruptions, labour shortages and rising input costs”.  

He added: “Smaller businesses, in particular, have been hardest hit, struggling to cope with reduced consumer spending and restricted access to finance.  

“Too few business owners are reacting quickly enough to distress signs. Early intervention and proactive restructuring can help prevent insolvencies and pave the way for sustainable recovery, avoiding liquidation.” 

R3 president Nicky Fisher added: “More and more businesses are running out of road or rope. Directors are choosing to close down their firms while the decision is still theirs, while an increasing number of creditors – including HMRC – are turning to winding-up petitions to recover the debts they’re owed. 

“When the pandemic ended, many directors thought and hoped things would improve, but instead they’ve faced rising costs, supply chain issues and a customer base that is tightening its purse strings to cope with the cost of living. 

“Business owners remain worried about customer demand, rising costs and the state of the economy, while high interest rates may affect access to rescue funding and could deprive saveable firms of a lifeline.  

“Unless the economic picture improves, it’s likely more businesses will need an insolvency process to help resolve their financial issues, and numbers will remain high throughout the rest of this year.” 

EY-Parthenon UK turnaround and restructuring strategy partner Samantha Keen, meanwhile, said the “current low-growth, high-inflation and relatively high interest rate environment has meant many businesses have faced building pressure over the last 12 months which is now translating into distress”, adding that the “tighter lending environment will have an ongoing impact on profitability”.  

On a more positive note, quarter-on-quarter the individual insolvency rate has gone down in England and Wales – decreasing by eight percent. This was driven by a drop in the rate of individual voluntary arrangements (IVAs) as both debt relief orders (DROs) and bankruptcies were both higher when compared to the first quarter of 2023.  

The total – 26,390 – was also 11% lower than during the second quarter of 2022. This overall figure was comprised of 17,458 IVAs, 7,106 DROs and 1,826 bankruptcies.  

Meanwhile, 21,232 Breathing Space registrations took place – 26% higher than during the second quarter of 2022. Of these, 20,919 were standard breathing space registrations and 313 were mental health breathing space registrations.  

Reflecting on the figures, Fisher said: “Making ends meet is still a key concern for many. People are living in a world where it costs more to keep a roof over their head, put food on the table and keep the lights on, so they’re only spending money on the essentials.  

“Alongside their money worries, job security and the health of the economy are key concerns for many people – while rising interest rates could affect their ability to pay or secure mortgages in the future, and inflation levels will continue to push costs up. 

“An increasing number of people are turning to credit cards to pay bills or pay for the basics, which is concerning as people in this position are just one financial shock – like an unexpected bill or a cut in hours at work – away from becoming insolvent.” 

Turning to the results in Scotland, and the country has seen company insolvencies increase by 25% when compared to the same quarter in 2022 totaling 324. This was comprised of 193 CVLs, 112 compulsory liquidations, 19 administrations and one receivership.  

It also saw a year-on-year increase in individual insolvencies – with the 2,098-figure recorded in the second quarter of 2022 being three percent higher than during the same period in 2022.

In Northern Ireland, 35 company insolvencies took place in the second quarter of 2023 – a decrease of 40% when compared to the same quarter two years ago (2021). This comprised of 24 CVLs, seven compulsory liquidations, two administrations and two CVAs.

As for individual insolvencies, 458 took place – four percent higher than in the second quarter of 2022, with this overall figure being made up of 349 IVAs, 62 bankruptcies and 47 DROs.