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UK company insolvencies rise to 13-year high

Author: ICAEW Insights

Published: 06 Feb 2023

After seasonal adjustment, the number of individual insolvencies began to rise as Q4 2022 was 6% higher than Q3 2022, and 7% higher than in Q4 2021. But the worst is yet to come, warns RSM.

The number of insolvencies in the last quarter of 2022 have jumped 30% on the same period the previous year, following the end of government support schemes – with experts predicting high liquidation numbers to continue for the next six months.

According to accountancy firm RSM, UK company insolvencies will continue to climb for the next few quarters in 2023 as rising interest rates and the cost-of-living crisis put a tight squeeze on debtor’s funds – at a time when many are still just recovering from the COVID-19 pandemic.

There were 5,995 registered company insolvencies between 1 October and 31 December 2022, according to figures released by The Insolvency Service. Quarterly statistics are adjusted to account for seasonal variation in insolvencies across the year and allow for comparison to the most recent period within years.

They include 4,891 creditors’ voluntary liquidations (CVLs), 720 compulsory liquidations, 359 administrations and 25 company voluntary arrangements (CVAs). There were no receivership appointments.

After seasonal adjustment, the number of company insolvencies in Q4 2022 was 7% higher than in Q3 2022 and 30% higher than in Q4 2021. The number of CVLs remained close to the highest quarterly level since the start of the series in 1960 (Q2 2022).

The number of compulsory liquidations also increased to the highest quarterly number since the start of the COVID-19 pandemic, partly as a result of an increase in winding-up petitions presented by HMRC and a high number of petitions from a single bank.

Gareth Harris, partner and Regional Head of Restructuring Advisory at RSM UK, says: “These Q4 insolvency numbers have confirmed that the ‘excess insolvencies’ that have been put off by the government COVID-19 support packages are now in free flow. We expect these high liquidation numbers to continue for a couple more quarters before slowly tailing off as the recession softens.

“But the next six months may be the toughest for UK business since the early 1990s as almost all economic indicators paint a gloomy picture and survival will represent success for many. This will, however, create opportunity for those strong businesses that may be able to capitalise if they can move quickly.”

ICAEW’s most recent Business Confidence Monitor found that UK business confidence had crashed to a 13-year low in Q4 2022 as a weakened economy and depleting customer demand caused business sentiment to plunge to 2009 global financial crisis levels. 

Bob Pinder, Director, Quality Assurance, Professional Standards at ICAEW, says: “Many businesses survived the pandemic due to government support, which has now largely come to an end, with many directors deciding to close their businesses while matters are still in their hands.

“I anticipate this year we will see more involuntary closures – either way we know ICAEW restructuring and insolvency firms are now getting much busier.”

The Insolvency Service figures also show the number of individual insolvencies in Q4 2022 was 6% higher than Q3 2022, and 7% higher than in Q4 2021.

In Q4 2022, there were 29,589 (seasonally adjusted) individual insolvencies, comprising 21,865 Individual Voluntary Arrangements (IVAs), 6,142 Debt Relief Orders (DROs) and 1,582 bankruptcies.

Andy Nalliah, partner and head of the personal insolvency at RSM UK, adds a word of caution on the volume of IVAs: “The rise in interest rates and the costs of living show little sign of slowing and for debtors whose discretionary funds are already depleted and whose savings are exhausted, the risk of failing to service their ongoing costs and expenses together with any IVA commitments remains very real and may only increase.”

The figures also show the lowest quarterly numbers on record for bankruptcy cases, with an 8% quarter-on-quarter decrease (1,582 bankruptcies in Q4 2022).

“The downward trend of the past two years continued for bankruptcy numbers,” says Nalliah. “I expect they are likely to remain low for the next few months as many debtors will endeavour to reach agreement with their creditors to avoid bankruptcy, and those with minimal assets can also avoid the bankruptcy process if they qualify for and enter a debt relief order.”

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