Company Insolvencies – A Review of the Current Financial Landscape

A high-level view of companies in England & Wales, unfortunately makes some grim reading for the current and future financial sustainability.

In 2023, total company insolvencies were 25,158 which equates to 69 companies per day and 46.5% higher than they were pre-pandemic (2019) – see below table.

Company insolvencies dropped in 2020/2021 which was mainly due to government support packages but since these have fallen away, in 2022, we have seen a sharp increase which looks on trend to continue for the foreseeable future.

We attribute these company failures due to several reasons but mainly due to pressures of paying back debts incurred during the pandemic, Brexit, cost of living crisis, interest rates soaring, Ukraine conflict and amongst others general inflation.

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Below are the total yearly insolvency numbers in England & Wales:

  • Total Company Insolvencies 2019 (Pre Covid) = 17,164
  • Total Company Insolvencies 2020 = 12,631 decrease 26.4%
  • Total Company Insolvencies 2021 = 14,059 increase 11.3%
  • Total Company Insolvencies 2022 = 22,123 increase 57.4%
  • Total Company Insolvencies 2023 = 25,158 increase 13.7% & increase 46.5% cf Pre Covid

Of these:

  • Administrations & CVAs only account for 6% between 2022-2023
  • Compulsory liquidations (Creditor led) – 9% in 2022 & 11% in 2023
  • Creditor Voluntary Liquidations (Company led) – 85% in 2022 & 82% in 2023

In 2023, Compulsory Liquidations were up 44% compared to 2022 but down 4% compared to 2019 (pre covid), which indicates creditors desire to take aggressive action to recover monies owed. In Nov-22, the Official Receiver deposit for a winding up petition increased from £1,600 to £2,600 which has made it less economical for creditors to pursue this avenue. That said, the main petitioning creditor is HMRC and despite this price increase, the numbers do not appear to have been affected, if anything they have increased. In the 12 months prior to Nov-22, there was a total of 1,585 compulsory liquidations compared to 2,791 (76% increase) for the period between Nov-22 to Oct-23. We anticipate that these numbers will fall from a private creditor perspective however it is expected that HMRC will continue with its momentum.

In 2023, Creditor Voluntary Liquidations was up by 9% compared to 2022 but significantly up at 70% compared to 2019 (pre covid). This clearly indicates the struggles companies have faced despite riding the storm but ultimately crashing and burning in the aftermath. It will come as no surprise that this has led to an enormous debt level owed to the Government which funded bounce back / CBIL loans but has not yet been re-couped.

What does the landscape look like for 2024? Andrew Athineos, Managing Director of Athena Collections commented… ‘This is a really difficult question as it is unclear if we have surpassed the crest of the wave or if other global events will continue to take its toll and batter our economy. With the general elections also looming, this will no doubt have an impact moving forward. It feels as if we may have peaked and hopefully the number of company insolvencies will flatline or better still start to drop.’

Sharing his top tips to help avoid getting into bad debt at a critical time when individuals and businesses are facing exceptional times and feeling the increasing pressure of daily financial management, Andrew added: “I understand that the lifeblood of every household or business is its cash flow. That’s why it’s so important to take action at an early stage to minimise the chances of falling into trouble. Prevention is always better than the cure.” So, what can companies do to better protect themselves against bad debt arising:

Top tips:

  1. Invoicing: Ensure invoices go out on time and consider bringing in your payment terms whilst bearing in mind any impact it could have on your customer
  2. Service: Follow up at least 7 days before the invoice is due to ensure it has been safely received and there are no issues
  3. Terms: If your customer can’t pay in full then agree written payment terms to give you admission in writing
  4. Communication: Keep in constant touch with your customers to monitor the situation. It makes no commercial sense to allow the debt to get bigger
  5. Security: Depending on the size of the transaction, consider asking for additional security in the form of a deposit upfront or personal guarantee
  6. Act fast: Don’t let a debt fester as it will only get worse. If there is a deadlock situation then try and resolve it amicably or seek the services of a 3rd party approach to put some distance between you and the customer
  7. Be confident: Do not make empty threats – be confident in your actions otherwise you lose all credibility and future actions won’t have the desired effect

 

Sources: Insolvency Service ; Companies House