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A stack of papers | AccountingWEB | 'Unsurprising' rise in company insolvencies
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Insolvencies rise against difficult backdrop

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With a confirmed recession and continuing high interest rates, company insolvencies have risen. However, there are some glimmers of hope.

16th Feb 2024
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The number of registered company insolvencies in January 2024 has increased against a backdrop of a confirmed recession and continuing high interest rates.

New figures released by The Insolvency Service show that there were 1,769 insolvencies reported last month in England and Wales, representing a 5% increase on January 2023.

Of this total, there were 339 compulsory liquidations in January 2024, up 66% year on year. Administrations were 40% higher at 120, creditors’ voluntary liquidations (CVLs) were 6% lower at 1,294 and there were 16 company voluntary arrangements (CVAs) last month – a 14% rise.

No surprise

Gareth Harris, partner at RSM UK restructuring advisory, noted that the statistics, while disappointing, “do not come as any surprise against the backdrop of a confirmed recession and continuing high interest rates”.

“While the technical recession may have lasted six months, the past two years have been very hard for many small- and medium-sized businesses, with low growth, supply-chain issues and high inflation leading to insolvency levels over that period about 38% above long-term averages,” he said.

Harris added that while it is “clear” that the legacy of Covid is not behind us, there are “some glimmers of hope, as we continue to see an appetite in the market from investors and lenders to provide lifelines, and we are still able to drive solutions quickly with assistance from key stakeholders”.

Borne the brunt

Rebecca Dacre, partner at Mazars, believes the figures “show just how much businesses have borne the brunt of the recession in the UK”.

“The toxic combination of stubbornly high interest rates, costs and falling consumer spending have pushed many businesses beyond breaking point,” she said. “The Bank of England has made it clear that we shouldn’t expect a sharp drop in interest rates so businesses should contingency plan for a slow and shallow recovery rather than a sudden bounce back in the economy.

“The fact that we’re in a recession may only have been announced yesterday but many businesses have known for a year.”

Upward trajectory

Matt Ingram, managing director of Kroll, said the firm’s forecast for rising administrations is “on track as mid-sized businesses start to feel the combined strain of inflation, increased debt servicing costs and subdued consumer demand”.

“We expect these numbers to continue on an upward trajectory, particularly as companies with stretched balance sheets but otherwise compelling business propositions use this process as part of a restructuring strategy with the anticipated return of investor appetite.”

He added that the first set of insolvency statistics for 2024 “continue with the trends we saw throughout last year”.

“Liquidations remain high – we expect to see these numbers tail off later in the year but in the short term, with consumer spending still suppressed, we will likely see smaller businesses use this process to wind up their affairs.”

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