High rates of insolvencies look set to continue as the latest quarterly insolvency statistics have been published for England and Wales. Whilst the statistics show a 2% dip from the second quarter of 2023, the number of insolvencies remains 10% higher than in 2022 and shows a return to pre-pandemic levels for compulsory liquidations and administrations. It is particularly striking that the first two quarters of 2023 represent the highest quarterly insolvencies since Q2 2009.
The statistics show that, as is to be expected, the vast majority of company insolvencies are either creditors’ voluntary liquidations (CVLs) or compulsory liquidations. These are both terminal insolvency procedures. The number of CVLs in the second and third quarter of 2023 is the highest since the start of the measurements in 1960.
The number of ‘rescue’ focused processes, such as administration and company voluntary arrangements (CVAs), remain markedly low compared to historic levels. In relation to CVAs, this may be a result of companies which would previously consider a CVA to compromise burdensome rent and rates liabilities now looking to utilise a restructuring plan, introduced by the Corporate Insolvency and Governance Act 2020, to deliver a holistic restructuring of the underlying business. The statistics report that since their introduction in 2020, 22 restructuring plans have been registered by English companies and 46 companies have obtained a moratorium. The restructuring plan is gradually becoming a key tool in the UK’s restructuring toolkit, notably given the increased use in the SME space as an alternative to CVAs to compromise both secured and unsecured liabilities (the CVA process being unable to compromise secured liabilities). This was most recently seen in the case of Fitness First, which was sanctioned by the court on 29 June 2023 (immediately prior to the end of this reporting period). The rise in the use of restructuring plans is something we expect to see continue. With appeal both domestically and in cross border situations, it will increasingly come to dominate our restructuring framework.
The economic landscape for businesses at a macro level keeps presenting challenges. Companies continue to face high levels of inflation and a decrease in government support with energy costs. Rising quarterly insolvency figures come as no surprise against this backdrop. Increased financing costs as a result of rising interest rates and sustained higher input costs have meant further pressure on business cash flows, causing less robust businesses to fail.
All industry sectors saw increased insolvencies in the 12 months ending Q3 2023, with the exception of electricity and gas, and mining and quarrying. This would suggest that economic pressures and rising insolvencies are not limited to particular sectors. The sectors with the most insolvencies over those 12 months were construction (18% of cases), wholesale and retail trade (16% of cases), and accommodation and food service activities (14% of cases). Again, this comes as no surprise, given that these are all industries impacted by high energy costs and tightened consumer spending, in addition to supply side pressures. We anticipate further distress within the retail sector, following the recent collapse of prominent retailer Wilko, which fell into administration in August 2023.
As the economic headwinds turn to visible distress, certain companies are now finding that they are unable to refinance or restructure and instead have to move straight to insolvency. This is demonstrated by the sharp increase of CVLs in this period.