One of the curious aspects about the official corporate insolvency statistics that are produced from The Insolvency Service every month is that, by necessity, they are one month behind.
So while schools, colleges, universities and workplaces are all back to full strength after the holiday season, the latest statistics from August reflect the reality of a late Summer.
Holidays and relaxation were in the air, even if the sun wasn’t and this is reflected in the reduction in the headline numbers.
The official total of company insolvencies in England and Wales in July saw a total of 1,953 recorded.
This is 9% lower than the 2,191 recorded in July and 15% lower than last August’s total. The total was still higher than the equivalent month in 2021 and 2022 however.
Analysis
Of the 1,953 corporate insolvencies in August, the most frequently occurring processes were Creditors’ Voluntary Liquidations (CVLs) with 1,542.
This is down 7% on the previous month’s total and a 15% reduction in the total from August 2023.
CVLs make up 79% of all corporate insolvencies recorded in August, an increase of 2% on the proportion from the previous four months, when it made up 77%.
In context, 2023 saw the highest annual number of CVLs since records began in 1960, continuing the year-on-year increases in CVLs since 2021. They had been increasing at a rate of approximately 10% a year between 2017 and 2019 before being artificially repressed during the Covid-19 pandemic period.
There were 279 compulsory liquidations recorded in August, which was down 12% on the total in July, which happened to be the highest monthly total recorded in three years.
It was an increase of 6% on the same month a year ago.
Compulsory liquidations grew 44% annually in 2023 but were still 4% lower than their pre-pandemic levels of 2019. Like CVLs they were also artificially restricted in 2020 and 2021 through temporarily halting recovery procedures.
HMRC continued to increase their pursuit of outstanding arrears this year by hiring more staff and dedicating more resources to their efforts under a new government, keen to recoup outstanding debts.
They will continue to use statutory demands and winding up petitions to chase overdue and owed corporation tax, VAT, PAYE or National Insurance Contributions (NICs).
There were 112 administrations in August which was a 25% monthly reduction and 40% reduction on the same month from a year ago.
Administrations fell to an 18-year low during the pandemic in 2021 before recovering to comparable levels seen between 2015 and 2019.
Company Voluntary Arrangements (CVAs) continued their recovery with 20 cases recorded in August. This was a 20% reduction from the previous month but is 82% higher than the same month in 2023.
CVAs increased by 68% in 2023 annually from their lowest total since 1993 although numbers are approximately half the totals seen from 2015 to 2019 so have room to grow further.
More directors are deciding that they will explore the legal protection provided by CVAs and administration to give them extra time to restructure their business and reduce their debts rather than go straight to liquidation although this will always remain an option for them if unsuccessful.
One receivership was recorded in August along with two moratoriums signed off by the High Court. Since June 2020, 57 companies had obtained an insolvency moratorium to pause legal actions from creditors while they were restructured and a further 30 had restructuring plans registered at Companies House as required under the Corporate Insolvency and Governance Act 2020.
According to data from the Companies House register one in 180 companies (55.5 per 10,000) entered insolvency in the 12 preceding months up to and including August 2024. This is a decrease from July’s total of one in 177 (56.6 per 10,00).
The Insolvency Service produces 12-month rolling rates calculated as a proportion of the total number of active companies which they say highlights the longer term trends and tunes out any monthly volatility – although both monthly and rolling numbers have increased.
Scotland
In Scotland last month there were 102 company insolvencies recorded in August. This was a decrease of 15 from last month and 9% lower than the numbers seen in August 2023.
This total consisted of 56 CVLs (down from 76 in July); 42 compulsory liquidations (up from 33); two administrations (down from eight); two receivership appointments and no CVAs.
Scotland has historically seen more compulsory liquidations than any other kind of insolvency process but since April 2020, CVLs overtook them and have remained higher ever since.
This shows that more Scottish directors and their accountants are being proactive and taking difficult but practical decisions earlier rather than relying on their creditors to take action themselves and force the closure of their companies.
The total insolvency rate in Scotland for the 12 months up to and including August 2024 was 53.2 per 10,000 companies on the effective register. This was down by 1.7 from the preceding 12 months up to and including August 2023.
Northern Ireland
In August there were 11 company insolvencies registered in Northern Ireland in August.
This was nine fewer than the previous month and 8% lower than the same total from a year ago.
The total number of company insolvencies was made up of nine CVLs (down one); one compulsory liquidation (down four) and one CVA (no change). There were no administrations (down four) or receivership appointments.
The total insolvency rate in the 12 months up to and including August 2024 in Northern Ireland was 39.9 per 10,000 companies on the effective register. This was a slight decrease from last month but an increase of 16.0 from the 12 months to August 2023.
The total number of company insolvencies for the whole of the UK in August then was 2,066 – a monthly decrease of 262.
“August’s slowdown shouldn’t distract from struggling businesses with high levels of debt”
Tim Cooper, President of R3, the insolvency and restructuring trade body said: “The monthly fall in corporate insolvency figures is likely to be a result of the traditional slowdown in appointments we see during August.
“This shouldn’t distract from the fact that businesses are still struggling and many are still trying to manage high levels of debt at a time when trading conditions remain difficult.
“While the overall economic picture has improved, the market remains a challenging one, and managing costs is still very much a key concern for many directors.
“From a sectoral perspective, retail sales increased in the summer and construction output increased in July but it remains to be seen whether this is enough to compensate for months of challenging trading conditions and whether the pre-Christmas trading period can provide the boost companies right across the economy badly need.
“Looking more broadly, now the Bank of England’s Monetary Policy Committee has made its decision on the rate of interest, firms may be prepared to look at their financing arrangements as many are likely to have been delaying this decision until after the announcement.
“However, there may be limited options available and this could lead to more discussions around restructuring options for businesses seeking alternatives to a fresh injection of funds.
“Of these, restructuring plans remain an option sought by a range of businesses across the UK and the accounting profession is continuing to search for a means of making them accessible to SMEs.
“Some of the most recent case law would suggest progress is being made, which is positive news given current levels of corporate insolvency and the challenges faced by the business community.”
With Autumn blowing in with the force of winter, many businesses will be considering how to hunker down for the next few months or get ready for a busy festive period.
No matter what challenges are facing your business, the chances are that you can do something right now to improve things.
The first thing you can do is to get in touch with us today and arrange a free initial consultation at a convenient time for you.
Once our advisors get a clearer picture of your business and unique circumstances you face they’ll be able to give you a full rundown of the options available.
The sooner you arrange a chat, the sooner you can put in place the changes that will benefit you for the rest of 2024.