Insolvencies reach 30-year high in 2023

Figures released this week by The Insolvency Service have indicated that 2023 had the highest annual number of corporate insolvencies since 1993. Although creditors’ voluntary liquidations were still the most frequently used process, all processes monitored by the Insolvency Service experienced an increase during the year.

2023 Insolvency Statistics in a nutshell

  • The number of overall insolvencies recorded reached a 30-year high.
  • There were 25,158 registered company insolvencies in 2023, including 20,577 Creditors’ Voluntary Liquidations (CVLs), 2,827 Compulsory Liquidations, 1,567 Administrations, 185 Company Voluntary Arrangements (CVAs), and two Receivership appointments.
  • CVLs increased by 9% from 2022 to a new record high number in the time series going back to 1960. Numbers of compulsory liquidations (up 44%), administrations (up 27%) and CVAs (up 67%) were also all higher than in 2022.
  • 1 in 186 active companies entered insolvent liquidation in 2023, meaning that the rate of company insolvent liquidation was 53.7 per 10,000 active companies in 2023, the highest level since Q3 2014.

So, as an Insolvency Practitioner, what does this tell us?

Like tea leaves, statistics are open to interpretation and can demonstrate the mind of the reader as much as the state of what it is measuring.

The insolvency statistics tell a story to me. At a basic level, insolvent liquidations are increasing. There is no surprise given the extra debt and stress of the pandemic coming home to roost and increased interest rates. Yes, there are more liquidations now than ever but there are also more companies now than ever. The trauma of corporate insolvency is real to the individual and can be very painful, but success and failure go hand in hand; one cannot exist without the other.

Of more concern to me is the fall in the number of administrations. Two of the purposes of administrations is rescuing all or part of a company or making a better realisation than a liquidation. A fall in the number of administrations combined with an increase in liquidations demonstrate that the insolvency profession, a group of individuals and firms that understand how to maximise the value of distressed businesses, cannot work its magic as effectively. Saving businesses and jobs are critical to a healthy economy. Let’s hope that the direction of travel changes in the next quarter. At this stage, it appears unlikely.

From a sector perspective, insolvencies increased across all industry groups in 2023 when compared to 2022. The construction, hospitality, and retail sectors were hit the hardest, likely due to their vulnerability to the immediate effects of economic downturns. The challenges faced by the hospitality and retail sectors are not surprising, given the ongoing impact of increased cost of living on discretionary spending. The construction industry, which faced well-reported challenges from higher interest rates and increased materials costs, was expected to have the highest number of insolvencies, as it did in 2022. 

Should we be concerned for the year ahead?

2024 will undoubtedly bring much change, and we may even have a new Government by the end of it. The short-term economic outlook remains uncertain and difficult to predict.

The cost-of-living crisis poses more questions than answers. If bank base rates remain close to 5.25%, whilst good for savers, this will mean many businesses and individuals will be unable to afford loan repayments at the higher rate when their current deals expire – whether that be loans for property or any other assets.

Some experts are suggesting that bank base rates may drop a little, but the days of 2% or below seem to be a distant memory that may not return any time soon.

Keep your communication lines open with your customers and if you are faced with an insolvency or a debt that is becoming difficult to recover, please reach out and seek advice early to consider all your options fully.

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