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Insolvency Rates Rising

Reflecting on our blog from last year, we stated that more than 6,000 companies were at risk of insolvency and that rates of insolvency were increasing. It seemed to be an incredibly difficult time, with the fall out of the pandemic hitting both businesses and individuals alike financially.

Looking into the government’s latest monthly insolvency statistics, we explore just what’s happening in the market. We have set out below a summary of the year to date, split between the main types of insolvency process.

Q1

Compulsory Liquidation (“WUC”) – 668

Creditors’ Voluntary Liquidation (“CVL”) – 4911

Administration(“ADM”) – 339

Company Voluntary Arrangement (“CVA”) – 39

Total – 5957

 

Q2

Compulsory Liquidation (“WUC”) – 645

Creditors’ Voluntary Liquidation (“CVL”) – 5299

Administration(“ADM”) – 403

Company Voluntary Arrangement (“CVA”) – 56

Total – 6403

 

Q3

Compulsory Liquidation (“WUC”) – 734

Creditors’ Voluntary Liquidation (“CVL”) – 4791

Administration(“ADM”) – 444

Company Voluntary Arrangement (“CVA”) – 41

Total – 6010

 

At BLB Advisory the second quarter was really busy and this is borne out generally across the whole insolvency market with a peak across all the types of insolvency. Despite some high profile casualties on the high street such as Wilko, it appears to have cooled slightly in Q3. However, it is worth highlighting that August, which is traditionally a quieter month, was actually a bumper month compared with 2022, being 19.4% higher in terms of total corporate insolvencies.

It has been commented on that there is still pain yet to be seen in the mortgage markets with many fixed rate deals yet to transition to the new heights of the current level of interest rates. It comes as no surprise then that the local news outlets across our various offices based in Coventry, Worcester and Hereford are reporting stories of restaurants closing down at a staggering rate. Over 3,000 restaurants have closed in the past two years to March 2023, with them blaming debt as one of the major contributing factors. In fact, during the first three months of 2023, it was reported that there was an average of six restaurants affected every single day. We are also seeing an increase in the number of pubs that are closing their doors.

Personal Trends

It’s not just businesses that are facing extreme difficulties in our present time. With the Bank of England announcing hiked interest rates over the Summer, that are now at 5.25%, it could push many mortgage holders too far.

The National Institute of Economic and Social Research reported a few weeks ago that: “By the end of 2023 more than a million households (4 per cent of all UK households) will run out of savings because of higher mortgage repayments, taking the total proportion of insolvent households to nearly 30 per cent (around 7.8 million)”.

The monthly stats revealed that, for individuals, 648 bankruptcies were registered in August 2023. However, while bankruptcy and debt relief order numbers were higher in August 2023 than August 2022, individual voluntary arrangements numbers so far in 2023 have been lower than the record high numbers in 2022.

But however you look at it, if the National Institute of Economic and Social Research’s forecast proves to be correct, then the issue of individuals facing significant financial difficulties could become much worse in the coming months.

Factoring in the stress that many households must be feeling under this quickly escalating financial pressure, it stands to reason that there were 7,235 Breathing Space registrations in August 2023. Of these, 7,119 were Standard breathing space registrations and 116 were Mental Health breathing space registrations.

The end to many of the financial issues that businesses and individuals are facing does not seem to be near. In fact, things may well get worse before they get better. At BLB Advisory, we are here to offer advice and guidance to struggling businesses, and there may be actions that can be taken to prevent closure.

The important thing is to take action sooner rather than later. Whilst so much is out of our control in terms of steep interest rates and energy prices, businesses still have some power in terms of their operations, and that is always worth exploring.

For any advice, please don’t hesitate to contact the team at BLB Advisory.