What directors need to know about the October statistics
We’re into mid November and we might well look back on this week as being some kind of marker for negative economic news.
Official inflation figures have risen to 11.1% which is the highest level seen in the UK since 1981 and we have still to have the Chancellor’s autumn statement widely expected to contain tax rises, spending cuts and very few treats for business owners and directors.
So it’s no surprise that now the Insolvency Service have released the official corporate insolvency figures for October show that the bad news has already started.
The total number of business insolvencies recorded last month was 1,948 – a 15.7% increase on the previous month’s total of 1,679 and not only the third highest monthly total in 2022, but the third highest monthly figure seen since January 2019.
The total was a 38% increase on the same figure from a year ago and is up 32% on the same month from 2019. This is also the eighteenth consecutive month when the number of recorded corporate insolvencies was both over 1,000 and was higher than the corresponding monthly figure from a year previously.
Analysis
Examining the 1,948 we can see some interesting variations and themes emerging.
The majority of cases were made up of 1,594 Creditor Voluntary Liquidations (CVLs) which were 82% of the total. This is the same ratio as last month’s total of 1,379 but was 214 greater.
The total is 28% higher than the number of CVLs recorded in October 2021 and 53% higher than October 2019.
Last month there were also a total of 242 compulsory liquidations (including winding up petitions) – which was an increase of 38% on the previous monthly total and a 357% increase on the total from a year ago.
Additionally there were 107 administrations (13% higher than October 2021) and 5 Company Voluntary Arrangements (CVAs) – 69% lower than in October 2021.
This is the fourth consecutive month that compulsory liquidations have grown and continues to provide proof that creditors are taking proactive steps to recover outstanding debts by using methods such as statutory demands and winding up petitions to try to enforce payment or give them the leverage to force businesses to close in more extreme cases in order to secure a return on the outstanding debts.
Administrations have risen again while CVAs continue to remain lower than previous months totals which underline how more businesses are being forced or are choosing to close through a liquidation process rather than restructure themselves.
Many directors have reached the conclusion that their interests will be best served by closing now rather than trying to muddle through the short and medium terms.
There were no receivership appointments last month and no additions to the total of 40 insolvency moratoriums obtained in England & Wales and a further 12 companies have had their restructuring plans registered at Companies House.
Scotland
There were 82 company insolvencies recorded for October in Scotland last month.
This was down 21 from the 103 recorded in September but was still 22% higher than the same month a year ago and 1% higher than in October 2019.
The total was made up of 55 CVLs (down from 69 in September); 19 compulsory liquidations (down from 25); 8 administrations (same as last month) and zero CVAs and receivership appointments.
No Scottish companies registered insolvency moratoriums since they were introduced in June 2020 while two have registered their restructuring plans over the same time period.
Traditionally, Scotland has tended to have higher compulsory liquidation rates than other kinds of insolvency but since April 2020, CVLs have been the most common and the Insolvency Service has seen three times as many recorded as other kinds.
Northern Ireland
There were a total of 15 company insolvencies in Northern Ireland in October – down 7 from September.
This is still a 7% increase from the same month a year ago although down 71% from October 2019.
The total was made up of 12 CVLs (down from 18 last month) and three administrations (up from zero in September) with no compulsory liquidations (down from two) and no CVAs (down from two). There were also no receivership appointments recorded.
The total number of UK-wide company insolvencies for October 2022 then is 2,045, which is an increase of 241.
“More directors are choosing to close their businesses and more creditors calling in debts as a means of balancing their own books”
Commenting on the figures, Nicky Fisher, Vice President of R3, the insolvency and restructuring trade body, said: “The rise in corporate insolvencies is driven by an increase in Compulsory Liquidations, Creditors Voluntary Liquidations (CVLs) and administrations.
“A series of economic issues, the end of temporary insolvency legislation, and a lack of a post-COVID bounce have hit all parts of the economy and the supply chain hard, and have resulted in more directors choosing to close their businesses and more creditors calling in debts as a means of balancing their own books.
“The current outlook is tough for many businesses as costs rise and consumer confidence remains low. Worries about the price of food and fuel as winter approaches means many people are saving their money ahead of their bills coming in and simply aren’t spending – and a range of businesses, including household names, are struggling as a result.
“On top of this, business owners are worried about the economy, the prospect of an imminent and prolonged recession, and where they’ll find the money to meet employees’ requests for increased pay as their own costs of living increase.
“The jury is still out on whether the Christmas trading period, which will include an unseasonal football World Cup, will lead to the traditional boom many businesses are hoping for or whether disappointing sales over the festive period will lead to businesses turning to an insolvency process to resolve their financial issues.”
Some big decisions will be made this week that will have ramifications for months and years ahead.
Business owners and directors can use the short time available to make their own crucial decisions right now and make sure they know they are on the right path no matter how the macroeconomic picture changes.
The sooner they arrange a convenient conversation, the earlier they can bring a degree of strategic certainty to their business and know they are acting instead of reacting to events.