The UK's latest company insolvency statistics: macro-economic headwinds continue to bite

As expected, the UK's latest quarterly company insolvency statistics, published on 28 October, follow the pattern of previous quarterly updates this year with the number of insolvencies continuing to rise in comparison with both the equivalent quarter in 2021, and pre-pandemic.

With the temporary insolvency measures implemented under the Corporate Insolvency and Governance Act no longer in force, the Q3 2022 data shows a significant increase in insolvencies from Q3 2021, with the overall number of registered company insolvencies 40 per cent higher.

The significant increase in liquidations compared to last year demonstrates that many businesses previously reliant on the government’s covid support will struggle to remain viable over the longer term as increasingly challenging macro-economic headwinds continue to bite. Despite the year-on-year increase, the Q3 2022 data represents a very slight decrease on the previous quarter in the total number of insolvencies.

Although creditors’ voluntary liquidations still make up the vast majority of corporate insolvencies (86 per cent in the latest quarter), the number of compulsory liquidations rose 28 per cent from Q2 2022. This perhaps suggests that creditors are becoming more willing to take active steps to wind up insolvent companies having now seen what the performance of those businesses looks like following both the withdrawal of government support and the impact of increased operating costs. Overall however, compulsory liquidations have not yet reached levels seen before the coronavirus pandemic. Similarly, the number of administrations remained well below the levels seen pre-pandemic (42 per cent lower than Q3 2019) and was broadly consistent with the Q2 2022. This statistic, taken with the rise in compulsory liquidations, may be indicative of the fact that rescue attempts were simply not viable for many businesses experiencing recent distress.

In terms of sectors, the most heavily affected sectors remain construction, retail and food. Insolvencies in the food and beverage services sector in particular increased over the first the quarter by 18 per cent, which perhaps reflects dampening consumer sentiment in the face of the ongoing high inflation and tightening of monetary policy. The ever-increasing effect of soaring energy prices seems to be having a more profound impact on this sector where those increased costs cannot be passed directly onto consumers. As we move towards winter and resultant higher energy bills, it seems inevitable that consumer spending will tighten further. While these sectors are expected to remain in difficulty over the final quarter of the year and beyond, other sectors will also likely become more distressed as a result of direct and indirect pressures of increased borrowing costs and disrupted supply chains. The impact of this may well surface first in sectors that offer products or services that consumers view as dispensable.