But underlying problems remain for many firms
It still feels that 2023 is box fresh in many ways which is why the arrival of Valentine’s day seems surprisingly quick.
But it’s an active reminder that time does move on whether you’re observing it or not and that it’s already time to look back on an important bellwether – the first official monthly statistics for corporate insolvency activity in 2023.
The Insolvency Service report that the total number of business insolvencies recorded in January for England and Wales was 1,671 – this was 15% lower than the previous month’s total of 1,964 but was 7% higher than one year ago and 11% higher than in January 2020 – the last equivalent pre-pandemic period two years previously.
This was also the 21st consecutive month when the number of officially recorded corporate insolvencies was both over 1,000 and was higher than the corresponding monthly figure from the same month in the previous year.
Analysis
If we look more closely at the 1,671 cases we can see that the majority of insolvencies continue to be made up of Creditor Voluntary Liquidations (CVLs) with 1,382 – 83% of the total number.
This is also a 2% increase on the total from January 2022 and is 37% higher than the same pre-pandemic monthly period in 2020.
The first month of 2023 saw a total of 189 compulsory liquidations (including winding up petitions). This was an increase of six cases from the month before and was 52% higher than the same period a year ago.
It was down 36% on January 2020 but this is to be expected as there was a halt to winding up petitions and statutory demands during the pandemic and other restrictions that were only lifted last year.
The number of compulsory liquidations reached historic lows during the previous two years and are now approaching their pre-pandemic levels as a result of HMRC and other creditors becoming more aggressive in recouping arrears they couldn’t pursue during Covid-19.
There were 86 administrations (down from 112) which was 21% higher than January 2022 but 49% lower than the same month in 2020.
There were 14 Company Voluntary Arrangements (CVAs) (up from 10) which is 8% higher than a year ago but is 56% lower than January 2020.
There were no receivership appointments recorded last month and there was an increase in insolvency moratoriums by two to 42 with 12 companies having their restructuring plans registered at Companies House as these procedures were created by the Corporate Insolvency and Governance Act 2020.
The high number of liquidations and comparative fall in the traditional numbers of administrations and CVAs (although they are recovering) indicate that more directors are choosing to close their business down rather than looking to restructure them.
Scotland
109 company insolvencies were recorded in Scotland in January 2023. This was a slight reduction of five but remained the third highest total recorded since January 2019.
This is more than double (114%) the total from January 2022 and an increase of 51% from pre-pandemic January 2020.
The total number of cases was made up of 54 CVLs (down from 85 in December); 53 compulsory liquidations (up from 22 and the highest monthly total since October 2019) and two administrations (down from seven). There were no CVAs or receivership appointments recorded.
Scotland has traditionally seen higher compulsory liquidation totals than any other type of liquidation and this is the first month since April 2020 when it has come close to overtaking CVLs as the most common method recorded.
Northern Ireland
There were a total of 14 company insolvencies in Northern Ireland in January which was down one from the 15 recorded in December.
This was down 22% on the same month a year ago and 46% lower than the total recorded in January 2020. The caveat regarding Northern Ireland is that with such relatively low numbers that one or two additional cases could be the equivalent of a 10% change indicating far more movement than has actually occurred.
The total of 14 was made up of nine CVLs (down from 11 last month); with four CVAs (up from zero) and one compulsory liquidation (down from two). There were no administrations or receivership appointments.
The total number of UK-wide company insolvencies for January 2022 is 1,794 – a decrease of 299 and the first month since October when total UK corporate insolvencies have been under 2,000.
“It’s been an unhappy new year for businesses in England and Wales”
Commenting on the figures, Christina Fitzgerald, President of R3, the insolvency and restructuring trade body, said: “Despite the monthly fall in corporate insolvencies, numbers are still higher than they were in January 2020, 2021 and 2022 – and not far below what they were in January 2019.
“The reason for this is the rise in the numbers of Creditors Voluntary Liquidations, which are higher than the previous three Januarys.
“Directors are still turning to this process to close down their businesses as trading conditions and creditors pressures remain tough – and many are taking this step before the choice is taken away from them.
“It’s been an unhappy New Year for businesses in England and Wales. The cost of living crisis and ongoing economic issues have meant the traditional new year spike in sales hasn’t happened and we’ve seen a number of household names enter an insolvency process over the last month in an attempt to resolve their financial issues.
“As household disposable income contracts and pay lags behind inflation, many people are cautious about how and where they spend their money and are looking to make cuts in essential and non-essential spending.
“This is a further blow for businesses who are looking to get back on their feet after a torrid three years and are now caught in a pincer movement of rising costs and falling income.”
While the overall headline number of corporate insolvencies for January has reduced monthly, as Christina Fitzgerald noted, they were still higher than the previous three Januarys and close to being higher than pre-pandemic 2019.
With inflation still high, interest rates rising and other economic pitfalls still awaiting directors this year – including the withdrawal of energy bills support for businesses at the end of next month.
Nobody knows a business like their owners and they are best placed to spot any subtle or not so subtle signs that their finances are tightening.
Small changes such as stock levels increasing, cashflow being stretched and struggling to pay rent, bills, taxes, staff or bounce back loans on time – all put together can spell a bigger issue than just a tight month.
This is exactly why we offer a free initial consultation for any business owner or director who wants one to get an expert opinion on their business and more importantly, what they can do right now to improve it.