CM December 2023

INSOLVENCY
Downward Spiral
Are the latest insolvency figures the start
of a Tsumani or a wet weekend?
AUTHOR – Les Clisby
THE number of registered
company insolvencies in Q3
2023 fell two percent on the
previous quarter, according
to figures released in
November, and some expect
that number to continue falling towards
the end of 2023.
The figures show between 1 July and
30 September 2023, there were 6,208
company insolvencies, made up of
4,965 creditors’ voluntary liquidations
(CVLs), 735 compulsory liquidations, 466
administrations, 41 company voluntary
arrangements (CVAs) and one receivership
appointment. The number of insolvencies
in Q3 2023 was 10 percent higher than Q3
2022.
Gareth Harris, partner at RSM UK
Restructuring Advisory, expresses
little surprise or alarm: “A small drop
in insolvencies is a step in the right
direction, with the majority of the fall
from lower levels of ‘shut down’ creditors’
voluntary liquidations at the smaller end
where the catch-up from COVID and
Government support has been flushed
out,” he explains.
“Sticky inflation, high interest rates and
the cost of living are still making it tough
for businesses to recover post-COVID, but
we are entering a new phase, as business
confidence recovers, we are already seeing
an increase in corporate rescues and
businesses bought from administration.
High debt levels are really starting to bite
but there is increased appetite to invest and
save those businesses that ought to have a
future.”
Gareth says that the flip side of this is that
whilst creditors have been supportive of
businesses as they recover post-pandemic,
this patience has now run out: “The stance
on forbearance has hardened, leading to
an increase in compulsory liquidations,
which points to the need to engage with
all stakeholders to find a solution. Whilst
this is a small fall in overall insolvency
numbers, we expect insolvencies to return
to more normal long-term levels over the
next few years.”
A perfect storm
Christina Fitzgerald, Immediate Past
President of R3, the UK’s insolvency and
restructuring trade body, is perhaps a
little more concerned: “A perfect storm of
economic issues has led to the highest Q3
‘‘The earlier you
begin dealing with
any issues, the
more options you
will have available
and more time to
make decisions
while concerns are
new, rather than
when they have
spiralled.”
corporate insolvency figures in more than
two decades,” she says.
“A combination of rising costs, director
fatigue and increased creditor pressure
mean more firms are turning to a
corporate insolvency process to resolve
their financial issues.
“The key driver of the numbers is the rise
in CVLs, which have reached their second
highest figure on record and the highest
number ever recorded in Q3. After years
of battling through the pandemic, supply
chain issues, increasing costs, rising
inflation and requests for higher wages,
many directors have simply had enough
and are calling it a day while that choice is
still theirs.
“Compulsory liquidation numbers have
reached a four year high – partly because
of legislation preventing them and then
making the winding-up petition threshold
higher in the aftermath of the pandemic,
but also because these firms are now under
their own pressures, and are calling in
debts in the hope of balancing their own
books.
“Trading conditions are tough right
now. People are worried about money and
reluctant to spend on anything other than
the basics – and even then, are looking
for the best deal possible – while costs are
rising and the economy remains turbulent.”
Christina believes that the Christmas
period could be make or break for many,
especially those in retail and hospitality:
“It remains to be seen whether this year’s
Christmas trading period will be the shot
in the arm or the final blow for those that
are struggling, and we may see a surge
in insolvencies in the New Year if it’s the
latter.”
Jonathan Andrew, Global CEO of Bibby
Financial Services, also believes that the
combination of high interest rates, inflation
and market uncertainty is undoubtedly
beginning to bite: “The cost-of-doingbusiness
crisis is a very real threat to the
UK’s economic recovery and, in particular,
the UK’s SME community,” he says.
“The construction, hospitality and retail
sectors have been the first to feel the pinch,
but the full picture of SMEs’ viability will
become clearer after Christmas. By then,
we could be staring down the barrel of a gun
for insolvencies. Without further support
from both the private and public sectors,
it’s possible we could see insolvencies
exceed the last financial crisis."
Brave | Curious | Resilient / www.cicm.com / December 2023 / PAGE 40