What are the main trends you need to know?
The festive season is now a hopefully happy memory and every business owner and director is instead looking forward to a new year which they hope will bring an increase in profit and trade for them and their employees.
So it’s the perfect time to take a quick look back at the previous month and what happened to companies while most of the country was more concerned with wrapping presents and trying to arrange their holiday travel plans.
The latest corporate insolvency figures for December have been released by The Insolvency Service and like a certain ghost of Christmas past, while they are but shadows of things that were, they can give us an accurate view of what’s happening now and hopefully give enough time to make some important changes for the future.
The total number of business insolvencies recorded in December for England and Wales was 1,964 – which was 3% lower than the previous month’s total of 2,029 but doesn’t tell the whole story.
This figure was more than 32% higher than the same month a year ago and 76% higher than the last pre-pandemic period of December 2019. This was also the 20th 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
Looking at the 1,964 cases more closely, we can see some powerful undercurrents that tell us more about what’s happening than a big headline number can.
The majority of cases, 1,659, continue to be made up of Creditor Voluntary Liquidations (CVLs).
They make up 84% of all insolvency cases and increased on the previous month by 64. The total is 22% higher than in December 2021 and more than twice as many in the pre-pandemic December 2019.
Last month saw a total of 183 compulsory liquidations (including winding up petitions).
Although this was a reduction of 108 from the month before, it was three and a half times higher than December 2021 and 8% higher than in December 2019.
Overall the number of compulsory liquidations have increased from their historical lows during the pandemic years to nearly double levels partly as a result of the increase in winding up petitions brought by HMRC in an effort to recoup funds lost during Covid-19.
Additionally there were 112 administrations (down from 134) but this remains 56% higher than a year ago.
There were also 10 Company Voluntary Arrangements (CVAs) which is the same total as a month ago and 43% higher than in December 2021.
No receivership appointments were recorded last month and no additions to the 40 insolvency moratoriums obtained in England and Wales or to the 12 businesses that had their restructuring plans registered at Companies House since these two procedures were introduced in 2020.
The rise in liquidations and comparative fall in the traditional numbers of administrations and CVAs shows that more businesses are choosing to close permanently rather than try and find a way through their financial difficulties in the year ahead.
Scotland
114 company insolvencies were recorded in Scotland in December 2022. Although this was a monthly reduction of four, it was still the second highest monthly total recorded in Scotland since January 2019.
This was a 23% increase on the same period a year ago and up 28% from the pre-pandemic December 2019.
The total number of cases was made up of 85 CVLs (up from 72 in November and the highest number recorded since January 2019); 22 compulsory liquidations (down from 42) and seven administrations (up from 3). There were no CVAs or receivership appointments recorded.
Traditionally in Scotland compulsory liquidation rates were higher than other types of insolvency but since April 2020, CVLs have become the most recorded type of insolvency procedure.
Similar to England and Wales, now more directors and owners of Scottish businesses are deciding to close their businesses rather than look to other ways to manage or move forward.
Northern Ireland
There were a total of 15 company insolvencies in Northern Ireland in December. This was slightly down from the 20 recorded in November.
The figure is still 67% higher than the same month a year ago but down on the pre-pandemic period of December 2019 by 53% although with such relatively low numbers one or two cases could be the equivalent of a 10% change indicating far greater movement than has actually happened.
The total of 15 was made up of 11 CVLs (down from 16 last month) with 2 compulsory liquidations and 2 administrations. There were no CVAs or receivership appointments recorded.
The total number of UK-wide company insolvencies for December 2022 is 2,093 – a decrease of 74 but still the third consecutive month when the total UK number of corporate insolvencies was over 2,000.
“These challenges aren’t going to go away overnight”
Commenting on the figures, Christina Fitzgerald, President of R3, the insolvency and restructuring trade body, said: “The monthly fall in corporate insolvencies is driven by a fall in Compulsory Liquidation and Administration numbers.
“However, corporate insolvencies have increased compared to last year and three years ago due to an increase in Creditor Voluntary Liquidation and Compulsory Liquidation numbers.
“This is due to a combination of directors choosing to close their businesses and creditors chasing unpaid debts due to changes in legislation as both ends of the supply chain remain squeezed by ongoing issues around consumer confidence, rising costs and requests for increased wages.
“December and January are critical periods for many firms, and these issues, combined with strikes, bad weather and the economic challenges the UK has faced over the last three years may have dealt a further blow to businesses and business owners.
“These challenges aren’t going to go away overnight – and directors are very concerned about the effects of energy and staff costs, as well as fears about how the cost of living crisis will impact on their business this year.”
New Year, New You, New Hope?
Many businesses are hoping that the first month of 2023 will begin briskly and continue and depending what sector they are in, there might be a mini boost as people begin to return to their normal routines and shopping habits.
Sadly this might not transpire for every business for a variety of reasons but even if this is the case, they still have one advantage – and that’s time.
We offer a free initial consultation for any business owner or director who would like to better understand what options they have available to them to help their business overcome its immediate and longer term challenges.
The sooner they get in touch, the sooner they can start putting their new plans into action and seeing the results.