Company insolvencies jump by two percent in December

Based on the latest figures from the Insolvency Service, this was higher than the levels seen while the government support measures were in place in response to the Covid-19 pandemic, and higher than pre-pandemic numbers.  

Of the 2,002 registered, 1,731 were creditors’ voluntary liquidations (CVLs) – five percent higher than in December 2022 – 153 were compulsory liquidations, 103 were administrations and 15 were company voluntary arrangements (CVAs). 

Commenting on this, Kroll’s co-head of restructuring Sarah Rayment said: “Judging by the number of company liquidations across the year, especially among small and microbusinesses, it’s fair to say that 2023 was a particularly challenging year.  

“Over the past 18 months, with a combination of higher inflation, higher energy bills and higher interest rates, we’ve unfortunately seen many companies fail, especially so-called zombie businesses. We’ve also seen more winding up orders from HMRC as the Government is keen to recover its debts. 

“What’s perhaps more interesting is how these added costs have affected larger businesses. Company administrations are up by over one-quarter on last year and are returning to pre-pandemic levels.  

“I think what is worth looking at is the year-on-year increases in certain sectors. There were generally more administrations in construction, manufacturing and retail businesses than other sectors because they are hit hard by consumer confidence, energy costs and lower margins.  

“Yet, it has been the food and drink sector that has seen a more than 80% increase in company administrations. The buying power of the supermarkets means many food manufacturers operate on very thin margins and inflationary input prices cannot be easily passed on as the supermarkets seek to keep retail prices low for the end customer in a super competitive environment.   

“We’re watching commercial real estate closely. The older office market is particularly challenged with falling occupancy, increasing energy efficiency standards and occupier demands impacting value alongside higher borrowing costs and looming debt refinances.   

“There are many commercial real estate businesses that will need to repurpose stock and/or restructure.” 

However, corporate insolvencies decreased by 18.9% between November and December 2023.

Responding to this, R3 president Nicky Fisher said: “The monthly fall in corporate insolvencies is due to a drop in Compulsory Liquidation, Creditors’ Voluntary Liquidation (CVL) and Administration numbers, while the year-on-year rise in corporate insolvency levels is driven by an increase in CVL numbers and a slight increase in Company Voluntary Arrangements, as the volume of businesses entering the other corporate insolvency processes fell compared to last December.

“The figures published today are the highest for December in four years and reflect the final month of a difficult year for businesses in England and Wales. December was tough for many firms as they faced additional expenses at a time when margins were already tight.

“These won’t have been helped by consumer spending slowing and rising energy costs. At the end of a tough year, these extra costs could have been the final blow for many businesses and may have led to their directors turning to an insolvency process to resolve their firm’s financial issues.”

In contrast to this, the number of individual insolvencies that took place fell by 20% year-on-year – falling to 6,584. They consisted of 3,616 individual voluntary arrangements (IVAs), 2,472 debt relief orders (DROs) and 496 bankruptcies.  

The overall decline was driven by a 38% drop in the number of IVAs that took place, while DRO and bankruptcy numbers were higher than last year – increasing by 25% and 22% respectively.  

Month-on-month, personal insolvencies also decreased – dropping by 20.3% between November and December. Commenting on this, Fisher explained: “The monthly fall in numbers is due to fewer people entering all three of the main personal insolvency processes, while a reduction in Individual Voluntary Arrangement numbers is behind the year-on-year fall in figures.

“However, the year-on-year increase in the number of people entering a Breathing Space suggests that demands for debt support are still high, but that people aren’t reaching the point where they need formal personal insolvency support.

“December is always a difficult month financially – and this one was no different. Many people were considering cutting their spending back to pay for Christmas, or had already saved or considered borrowing money to pay for it.

“As we head into the spring, it’s likely that energy costs will continue to be a concern for many people with an increase in price caps from this month and government support coming to an end for many from next month.

“While food inflation and the price of petrol has been falling, events developing in the Middle East are likely to lead to renewed upward pressure on prices and could delay interest rate cuts. Combined, these factors could see insolvencies rise next month if these ongoing expenses become too much to manage.”

Outside of England and Wales, Scotland saw the number of company insolvencies that took place fell by five percent year-on-year to 108, with this comprising of 65 CVLs, 40 compulsory liquidations and three administrations.  

Northern Ireland, however, saw a 67% jump in company insolvencies year-on-year – rising to 25. This was made up of 17 CVLs, six compulsory liquidations, one CVA and one administration.

Despite this and similarly to England and Wales, individual insolvencies dropped year-on-year – falling by 39% to 76. This consisted of 60 IVAs, 10 bankruptcies and six DROs.