Company Insolvencies Are at their Highest Level since 2009

According to the Insolvency Service, company insolvencies have now reached their highest level since 2009 – just under the record levels set during the peak of the 2008 global financial crash.

6342 companies entered into insolvency during the second quarter of 2023, a 13% rise from the second quarter of 2022. The continuing rise is thanks to the ongoing economic fallout of the COVID-19 pandemic.

In this article, we’ll be covering HMRC’s response to the situation, which industries have been most affected, and what options are available to struggling business owners.

HMRC’s Increased Collection Efforts

HMRC is increasing its efforts to reduce its colossal tax debt balance, which is now over twice as high as it was before lockdown.

Government figures show that HMRC’s tax debt was at £48 billion at the end of 2022 and – despite their efforts – was still at £44 billion at the end of Q1 2023: prior to the pandemic, this debt sat at a relatively low £15 billion average.

HMRC is seeking to reduce its debt by forcing companies into liquidation. According to figures published by Kroll, 348 winding-up orders were issued as a result of HMRC winding-up petitions in July 2023, the highest number for any month since 2019.

HMRC also introduced penalty and interest reforms in January 2023 to “encourage payment on time and [achieve] quicker debt resolution”.

HMRC has stated that most of the outstanding debt is owed by small and medium-sized enterprises (SMEs), making them the most at risk.

Which Businesses Are Being Most Affected?

While businesses across the board are feeling the impact, the Insolvency Service has highlighted five industries which have suffered the most in the last 12 months:

Construction: 4262 insolvencies – 18% of cases
Automotive Repair: 3965 insolvencies – 16% of cases
Hospitality: 3262 insolvencies – 14% of cases
Administrative and Support Services: 2222 insolvencies – 9% of cases
Manufacturing: 1874 insolvencies – 8% of cases

Out of these five industries, particularly sharp rises in the construction, automotive, and hospitality sectors are the main drivers behind the increase in overall insolvencies.

Options for Struggling Business Owners

Insolvency is a worrying prospect for any business owner. You may be concerned about becoming personally liable for business debts or encountering unwanted legal issues.

To help mitigate these problems, it’s best to avoid waiting to be shut down via court order, which can result in accusations of wrongful trading. Instead, you should take initiative and pursue a formal insolvency solution.

Creditors' Voluntary Liquidation (CVL)

A Creditors’ Voluntary Liquidation – or CVL – is the go-to option when it comes to corporate insolvency. It’s the most common means of business closure in the UK, offering a safe exit for company directors:

Stops pressure from creditors in as little as 14 days
Writes off company debt through the sale of assets
Helps to protect against potential legal liabilities
Typically comes at no personal cost

Control of the company is handed over to a liquidator who sells all assets to help repay creditors. Any remaining debts are written off.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement – or CVA – is a repayment plan that is brokered between a business and its creditors. It’s the ideal solution for directors of insolvent companies who wish to continue trading:

Spreads out debt repayments, making them more affordable
Freezes interest on debt
Offers immunity from debt-recovery actions

CVAs typically last for around 5 years. Debts remaining after this point are liable to be written off. While you’ll have to factor in an extra cost on your balance sheet, so long as you stick to your allotted monthly payments, your business will be safe from closure.

Administration

Administration seeks to – where possible – save a business from closure. Control of the company is given to an administrator, who reviews expenditure, structure, and staffing:

Can potentially reverse insolvency
Provides breathing space through a moratorium period
Can increase the likelihood of being accepted into a CVA

Although administration doesn’t offer any guarantees, having a fresh pair of eyes to assess the company’s affairs can restore the business to financial security.

Speak to an Expert Today

If your business is facing insolvency, you should speak to an insolvency practitioner as soon as possible.

The sooner you act, the better your chances of a positive outcome. Early action can reduce financial fallout, prevent legal issues, and even achieve a turnaround for the business.

Delaying often results in compulsory liquidation, leading to investigations into director conduct and – potentially – allegations of misfeasance and wrongful trading.