Registered company insolvencies in 2023 were at their highest annual level since 1993. Q4 saw the highest quarterly insolvencies since Q4 2008, a 9% increase on Q3 2023 and 14% higher than Q4 in 2022.
Once again, the general increase was driven by Creditors Voluntary Liquidations (CVL’s) which accounted for the most significant proportion of the increase; the most recorded in a single year since 1960, with 82% of insolvency procedures being recorded as a CVL this was also the most popular method of insolvency. CVLs increased at a rate of 10% annually between 2017 and 2019, followed by a decrease in 2020 due to the pandemic then a 56% increase taking them above pre-pandemic levels in 2022. Compulsory liquidations accounted for 11% of all cases, Administrations sat at 6% and the final 1% were Company Voluntary Arrangements (CVAs).
A variety of factors have contributed to the high figures seen in Q4 2023; finance costs are at a record high, the cost-of-living crisis and rising energy costs have seen consumers reducing their spending and the pandemic continues to contribute to the figures due to an inherent lag in companies resolving the consequences of its longer-term impact. Although company insolvencies are at a 30-year record high, the total number of companies registered has also increased in that period and the proportion of companies entering formal insolvency in 2023 remains lower than at the peak of the 2008/2009 recession.
The three industry sectors most affected in the 12 months ending Q4 2023 were:
• Construction (4,371 insolvencies)
• Wholesale and Retail Trade and Repair of Vehicles (3,929 insolvencies)
• Accommodation and Food Services Activities (3,727 insolvencies).
Whilst Construction provides the largest proportion of insolvencies in 2023, the higher levels of insolvency in 2023 were dominated by the sectors most impacted by the pandemic and subsequent global and domestic events, leading to inflation, interest rate rises and reductions in consumer spending. Construction is similarly impacted by these issues, but it tends to be slower to respond, more resilient, and has not shown a significant increase year on year.
In contrast, the number of individual insolvencies registered in 2023 was 13% lower than 2022. The number of IVAs for the whole of 2023 was at its lowest since 2017. However, the number of individual insolvencies in Q4 2023 was 3% up on Q3 which could signify the start of a fresh wave brought on by factors in the domestic economy. The number of Debt Relief Orders was at its highest since their introduction in 2009 which could be attributable to the recent adjustment in eligibility criteria, whilst IVA’s remained at a similar level to Q3.
Xeinadin has reviewed the official statistics and Charles Brook, Director said “In the most recent quarter we are really starting to see the deeper impact of the current economic climate, and the continued fallout from the pandemic especially on the retail and hospitality sectors. The cost of borrowing and the inflationary impact on materials and business services will need to ease in order for businesses to sustainably recover from the cumulative impact of recent global and domestic shocks.”
