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Woods | AccountingWEB | Firms not out of the woods despite insolvency dip

Companies not out of the woods despite insolvency dip


Gareth Harris of RSM has warned that there is ‘still work to be done’ despite insolvencies falling in March.

1st May 2024
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Companies are “definitely not out of the woods” so far as insolvencies go, a partner at RSM has told AccountingWEB, but the recent reductions are cause for “cautious optimism”.

New data from the Insolvency Service shows that after seasonal adjustment, the number of registered company insolvencies in England and Wales in March 2024 was 1,815 – representing a 17% drop from February 2024 (2,177) and a 17% drop from March last year (2,193).

Company insolvencies in March 2024 consisted of 261 compulsory liquidations, 1,437 creditors’ voluntary liquidations (CVLs), 108 administrations and nine company voluntary arrangements (CVAs).

Numbers of all types of insolvency were lower than in both March 2023 and February 2024.

However, the figures remained much higher than those seen both during the pandemic and between 2014 and 2019.

Record levels

Speaking to AccountingWEB, Gareth Harris, partner at RSM UK Restructuring Advisory, noted that insolvencies had been at record levels partially due to a “catch up” from the government’s support for businesses during the pandemic, which he said was “particularly true for smaller company CVLs, which have been most prevalent”.

“What we are seeing now is the very start of what ought to be a gradual longer-term trend towards a more normalised level of insolvency,” he added.

“Overall historic insolvency numbers are closely linked to inflation and interest rates, so as those both transition down to lower levels we ought to see this trend continue.

“However, for individual companies and particularly those facing difficult trading, cashflow issues, high debt burdens and a tight labour market, there is definitely still work to be done.”

He stressed they would “need to keep a close eye on cash and costs and manage relationships with key stakeholders such as funders”, adding: “But as investors and funders’ confidence returns, there may be an appetite for more positive engagement and restructuring, addressing the underlying issues outside of a formal insolvency process.

“We are definitely not out of the woods, and may see some “blips” in the monthly insolvency numbers, but the recent reductions are cause for cautious optimism.”

Not the whole picture

Kirsty McGregor, founder and chairman of The Corporate Finance Network, noted that it “usually takes many months of distress and crisis before a company actually goes through a formal insolvency procedure and some days or weeks after the court case before it is registered on the public record at Companies House”.

“In my local community I have been witnessing many pubs, restaurants and retailers still sadly closing down in recent weeks,” she said.

“While these may not be limited company businesses and may be unincorporated, so will not feature in the company statistics from the Insolvency Service, I cannot help but feel that we are not out of the woods yet.

“The time lag for smaller businesses often means that it takes a while longer for these to make the decision to close, or have it forced upon them by suppliers or HMRC.

“We know HMRC has recruited more enforcement officers in recent months, therefore I think these statistics may not show the whole picture. However, I sincerely hope I am wrong.”

Replies (3)

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By FactChecker
01st May 2024 19:10

I know it takes all sorts to make the world an interesting place, but it takes a 'special perspective' to keep a straight face whilst saying “What we are seeing now is the very start of what ought to be a gradual longer-term trend towards a more normalised level of insolvency.”

And do I detect a wistful undertone that suggests those interviewed were happier when the story was about the *increase* in insolvencies?

Thanks (2)
Replying to FactChecker:
Kirsty image
By Kirsty McGregor
04th May 2024 08:45

Definitely not me. I’m a corporate financier - I want growth & optimism. But I’m also a realist. Thanks for your comment.

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Replying to kirstymcgregor:
By FactChecker
04th May 2024 19:52

It wasn't a personal gibe, but in my (deeply cynical) world view I always hear words like 'restructuring' and remember what one of my old school friends (destined for billionaire status) told me ...
... 'change is always good - it doesn't matter whether others think the change is good or bad; change means opportunity - the only thing from which I run is stasis'.

Wikipedia: "Corporate finance is the area of finance that deals with the sources of funding, and the capital structure of corporations."

You and I don't so much hold diametrically opposed views as simply don't speak the same language.
Much to the amazement (closer to disgust) of advisors, every company I've set up has never had outside investment or bank borrowing - my role model being Mr Micawber. Growth of course is constrained but steady (funded not out of profits but positive cashflow) and risks can be managed within an environment where every factor is within the control of the Board (not the market).

But each to his or her own ... and good luck to you.

Thanks (2)