Company insolvencies in August increased by 33% compared to the prior month and were 19% higher than the period last year. Coming off July’s drop in insolvencies, the Insolvency Service’s statistics underscores that the long-term economic issues haven’t gone away.
In the same month that high street stalwart Wilko called in the administrators, ultimately waving the flag on its 90-year legacy, the Insolvency Service reported that 2,308 companies went bust in England and Wales. This is up from the 1,941 in August last year and 1,727 in July.
CVLs continue to dominate
The majority of the insolvencies were driven by the 1,880 creditors' voluntary liquidations (CVLs). This was 13% higher than August last year.
Matthew Padian, a partner at law firm Stevens & Bolton, said the dominance of CVLs is a “reflection that companies are continuing to pull down the shutters in response to continuing economic pressures”.
He noted recent industrial action, the poor end to summer weather and a further hike in interest rates as all playing a part in “ramping up economic pressure on businesses”.
Compulsory liquidations see a sudden surge
While CVLs remained as high as usual, last month saw a big leap in the number of compulsory liquidations. There were 221 compulsory liquidations, which was 45% higher than the same period last year.
Padian attributed compulsory liquidations to an influx of HMRC submitting winding-up petitions. “It’s evident that the days of pandemic-era relief are over. HMRC is no longer sitting back on the side-lines waiting for other creditors to bite the bullet and call time on a non-paying debtor.”
Administrations on the rise
The number of administrations also skyrocketed to 195 in August, which is 68% higher than August 2022. Industry experts have seen this as a promising sign as the increase shows an appetite for rescuing failing businesses.
Although as Nicky Fisher from R3 pointed out, the rise also shows that “more and more businesses are at a point where they are in need of specialist help to survive – and that a sale or a liquidation may be their only options”.
The total number of insolvencies are made up with 11 CVAs and one receivership appointment.
Strain on care homes
The collapse of Wilko shows the effect tough economic conditions are having on the high street, but according to data from Mazars, care homes are also taking a hammering from the rising costs.
The number of care homes going insolvent has increased 30% up to the end of June. The mix of rising food and energy costs, alongside staff shortages, has led to 105 care homes going bust, up from 81 the year before.
Mazars explained that many care businesses are heavily leveraged and interest rate rises will have added significant additional costs to those with floating-rate mortgages on their properties and pushed those with thin margins to a financial breaking point.
Further challenges
Beyond the broader economic issues, Andy Davis from Azets noted a reduction in access to capital and liquidity. “When added to the pressures businesses are already under, [the reduction in access to capital and liquidity] is likely to lead to even shorter runways when a business becomes stressed,” he said.
With insolvencies set to increase for many months to come, R3's Fisher said: “The sad fact is that businesses are being hit from a variety of angles – and all these blows have an effect on their bottom line. Cost inflation has been a problem for some time and while this is expected to ease it is still sitting higher than many had predicted.
“As a result of this, upward pressure on pay is continuing, while recruitment is a challenge, and people are still cautious about spending money on anything other than the essentials.
“It’s unlikely the picture will improve in the near future as people and businesses face the prospect of increased energy bills, and people start watching their spending even more closely."
