Company insolvencies jump 27% as high interest rates hit economy
Company insolvencies in England and Wales have jumped, as firms are hit by a slow-growing economy and high interest rates.
There were 2,163 registered company insolvencies in June, the Insolvency Service reports.
That is 27% higher than in the same month in the previous year – 1,698 firms filed for insolvency in June 2022.
It is higher than levels seen while the Government support measures were in place in response to the Covid-19 pandemic and also higher than pre-pandemic numbers.
But it is a drop on May, when 2,552 insolvencies were reported – a 40% year-on-year surge.
Jeremy Whiteson, insolvency and restructuring partner at UK law firm Fladgate: “The monthly insolvency statistics for June 2023 issued by the UK government continue to show substantial number of company insolvencies.
With 2,163 company insolvencies for the month, this was a 27% increase on June 22.
A particularly high increase was shown for compulsory liquidations. That is a procedure for creditors to force a company into liquidation through court order. With 260 compulsory liquidations in June 23, this is a 77% increase on June 22. The government’s own commentary states that this increase was “partly as a result of an increase in winding- up petitions presented by HMRC”. That reflects anecdotal information from professional advisers in this area. It causes concern if a more aggressive approach from HMRC in collecting debts is killing off otherwise viable (albeit distressed) businesses. The less constructive approach to business rescue by HMRC is probably influenced by the partial restoration of preferential status for tax in 2020 which gives HMRC less incentive to work with companies to see through difficulties. This is a worrying trend.
The biggest component of company insolvencies remained creditors’ voluntary liquidations. That is a procedure by which a company’s shareholders can vote to put a company into liquidation. It is generally used when there is no continuing business. At 1,759 there was a 21% increase of creditors’ voluntary liquidations on June 2022. Our experience is that many businesses have been worn down by an increase in interest rates following closely after the shock of the pandemic and other recent economic stresses (shortage of labour, increased export and import formalities from Brexit, higher commodity process, a tighter funding market, and geopolitical uncertainty).
The increasing trend also affected administrations and company voluntary arrangements- two procedures which are generally used by companies in difficulty but with continuing businesses. At 130 administrations, this is 44% up on June 2022. Company voluntary arrangements were at a smaller overall number but 75% up on June 2022. The introduction of additional regulation around pre-pack administrations (where the sale is negotiated before the administration appointment and, often, the buyer is connected to management) have increased the cost of these procedures and put them beyond the reach of many businesses that may have been saveable with a more streamlined procedure. The increase in the use of these procedures suggests that the economic difficulties are now affecting more substantial and more viable businesses.
A glimmer of hope may be taken from the fact that there was a small decline in figures from the immediately preceding month – May 2023 (other than for compulsory liquidations where there was a substantial increase from May 2023). We will need to follow figures over coming months to see whether this is a blip or a sustained increase in insolvencies.
It would not be surprising if this was part of a more sustained increase in insolvencies. Increasing inflation rates are putting stress on many businesses, making fundraising more difficult and may be starting to affect consumer behaviour.”