Liquidations rise but so do restructuring options such as administrations and CVAs

June might have been the month of distractions with a general election campaign in full swing and England’s unlikely march through Euro 2024 but businesses and the economy kept on rolling in the background. 

Which is why the latest corporate insolvency statistics from The Insolvency Service for June are a surprise because a lot more companies were busy entering an insolvency process than expected.

The official figures for company insolvencies in England and Wales in June saw a total of 2,361 recorded last month. 

This total is 15.7% higher than the 2,006 recorded last month and 17.1% higher than the same month a year previously. This total is also an increase of 49.5% from June 2022’s total of 1,579 and a 61.1% increase from the pre-pandemic total of 1,466 seen in June 2019.

This is the second highest monthly total seen since January 2021, the third highest since 2000 and the highest in over 12 months.

Analysis

Of the 2,361 corporate insolvencies in June, the most frequent kind of procedure were Creditors Voluntary Liquidations (CVLs) with 1,866.

This was a 16% increase on the previous month and coincidentally a 16% increase on the same total from June 2023. The CVL total made up 79% of all corporate insolvencies last month which is the same overall proportion for four consecutive months.

There were 302 compulsory liquidations recorded in June, which was an increase of 10% from the 275 recorded last month. This was also a 19% increase on the total from June 2023. 

As HMRC takes on more staff to aggressively pursue debtors for outstanding arrears, they and other creditors will continue to use statutory demands and winding up petitions. 

Directors should be prepared to consider what their course of action should be in the coming weeks and months if they are behind on corporation tax, VAT, PAYE or national insurance contributions.

There was a large rise in administrations in June with 170 recorded – the most since August 2023. This was a 30% rise on the total from May and a 22% increase on the same month a year ago. 

There were 23 company voluntary arrangements (CVAs) last month too. This was a 21% increase from last month and a large 64% increase from the total in June 2023. 

This means that more directors are taking the opportunity to use the extra legal protections of administration and CVAs to help give them extra time to restructure their businesses or reduce their debts to more manageable monthly repayments. 

No receiverships or moratoriums were registered in England or Wales last month.

Since June 2020 53 companies obtained an insolvency moratorium to halt legal actions while they restructured and 23 had their restructuring plans registered with Companies House as required under the Corporate Insolvency and Governance Act 2020.

According to the Companies House register one in 179 companies (55.8 per 10,000) entered insolvency in the 12 months up to and including June 2024. 

This is a slight increase from the one in 180 (55.6 per 10,000) registered at the end of last month. 

The Insolvency Service produces 12-month rolling rates that are calculated as a proportion of the total number of companies on the active register and highlight longer term trends and tune out the volatility that can be associated with single monthly figures. 

The overall insolvency rate has increased to above pre-covid levels but remains lower than the peak of 113.1 per 10,000 companies that was reached during the 2008/09 recession. This is mainly due to the number of companies on the active register more than doubling over this period. 

Scotland

In Scotland last month there were 109 company insolvencies recorded. 

This was 9 fewer than the total from May which in itself was the highest monthly number recorded in the past five years. This was also 4% lower than the total from June 2023. 

This total consisted of 60 CVLs (down from 71 in May); 43 compulsory liquidations (no change) and six administrations (up two). There were no CVAs or receivership appointments recorded in June.

In Scotland compulsory liquidations have traditionally been the most frequent insolvency process but since April 2020 and Covid-era restrictions being applied, they have been overtaken by CVLs. 

This shows how proactive Scottish directors and their accountants are in making difficult decisions and acting decisively before their creditors make the decision for them.

The total insolvency rate in Scotland in the 12 months up to and including June 2024 was 53.1 per 10,000 companies on the effective active register. This was down 0.6 from the preceding 12 months ending in June 2023. 

Northern Ireland

In June 2024 there were 17 company insolvencies registered in Northern Ireland. While this was down 27 on last month’s large figure, it was still 13% higher than the figure from June 2023. 

The total consisted of eight compulsory liquidations (down from 22 last month); seven CVLs (down from 20) one CVA (down from two) and one administration (up one from zero). There were no receivership appointments.

The total insolvency rate in the 12 months up to and including June 2024 in Northern Ireland was 40.1 per 10,000 companies on the effective active register. This was an increase of 15.6 from the 12 months up to June 2023.

The total number of company insolvencies for the whole of the UK in June was 2,487 – an increase of 319 from last month.

“Creditors are taking a much tougher stance this financial year.”

Tom Russell, Vice President of R3, the insolvency and restructuring trade body said: 

“The monthly and yearly increase in corporate insolvencies is driven by an increase in creditors’ voluntary liquidations (CVLs) – a process usually used by smaller businesses and which is often driven by cash flow problems or difficulties with access to finance. 

“Compulsory liquidation numbers have also risen to their second highest level since January 2021 and suggests that creditors are taking a much tougher stance this financial year.

“There are some positive signs in the figures – CVAs and administration numbers have increased compared to last month, and administration numbers are higher than this time last year and in June 2019. 

“Insolvency professionals will always try to rescue businesses whenever they possibly can and this trend suggests that there are an increasing number of businesses for whom this is an option and whose secured creditors are willing to support rescue proposals. 

“The reality is that businesses are still trading amidst high costs and cautious consumer spending, and despite recent more encouraging data pointing to increasing growth and falling inflation, the trading environment is still challenging for many businesses, and it seems that the economic improvement has come too late for some. 

“While retail sales rebounded in May, they are still down year-on-year and restaurant spending fell again last month as consumers continued to be cautious with discretionary spending to save money. 

“These sectors have struggled since the start of the year and have yet to bounce back from a disappointing pre-Christmas trading period, so we may see insolvency numbers increase in the Autumn if trading conditions don’t improve. 

“The statistics show that levels of CVLs have been high for some time now. The new government has committed to a number of new policies during the General Election campaign which are designed to boost the business community – especially SMEs. 

“Their pledge to reform business rates to be fairer may benefit businesses in the retail and hospitality sector, while plans to introduce legislation to tackle late payments, if effective, will improve cash flow for businesses and free up resources that will potentially allow firms to focus on investment and growth instead of chasing money they are owed and managing cash flow. These measures will take time to introduce and may come too late to help those who are currently struggling. 

“It’s also worth noting that many businesses continue to be optimistic about the future, with lower inflation and the prospect of higher sales and profits boosting their confidence about the coming months, but we’ve yet to see the full impact of the General Election on the economy and purchasing decisions, and despite their optimism about the future, organisations remain concerned about customer demand, staff turnover and meeting their regulatory requirements.”

Last week’s King’s Speech saw several policies unveiled that will affect businesses of all sizes all over the UK but with uncertainty growing about the future of capital gains tax and other measures ahead of the new chancellor’s first Autumn budget, the time to get some professional advice is really now. 

There will inevitably be delays to new policies and their effects feeding through so you do have some time to implement decisions to improve your company’s fortunes before it becomes too late to change course. 

Get in touch with us today and arrange a free initial consultation at a convenient time for you. 

There are still five and a half months left in 2024 – plenty of time to make it a real year to remember for you and your business – but only if you act while you can.