Company Insolvencies Have Risen 10% Compared to Last Year
There were 6028 company insolvencies recorded in the third quarter of 2023, while there were 5635 insolvencies recorded in the third quarter of 2022.
While the total amount of company insolvencies has decreased by 2% since the last quarter of 2023, figures still rival the record-high levels seen after the global 2008 financial crisis – and the 10% rise suggests the growing rate of insolvencies shows no sign of slowing down.
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Which Industries Are Experiencing the Most Insolvencies?
While businesses across the board are struggling with the economic turmoil caused by the post-pandemic cost-of-living crisis, these five industries have suffered the most over the last 12 months.
- Construction: 4276 insolvencies – 18% of overall cases
- Automotive Repair: 3777 insolvencies – 16% of overall cases
- Accommodation & Food Services: 3477 insolvencies – 14% of overall cases
- Administrative & Support Services: 2282 insolvencies – 9% of overall cases
- Manufacturing: 1911 insolvencies – 8% of overall cases
While construction boasts the highest number of insolvencies, the automotive repair, accommodation & services, and wholesale & retail industries have seen a much sharper rise in the past year.
How Are Directors Handling Insolvency?
In the past 12 months, 1 in 191 companies have faced the unfortunate prospect of insolvent liquidation. However, there is a worrying trend in how these companies are being shut down.
When a company enters into insolvency, a director’s fiduciary duties change, meaning that they have to place the interests of their creditors first, not those of the company shareholders.
Allowing the company to be forced into compulsory liquidation can make the position of creditors worse, thereby leaving directors legally and financially exposed.
While the number of compulsory liquidations is still lower than figures at the turn of the century, levels are beginning to increase. There were 46% more compulsory liquidations in the third quarter of 2023 when compared to the same period last year.
What Options Are There for Insolvent Directors?
When a company approaches insolvency, it is important for company directors to take the initiative and tackle the situation head-on.
This can secure a safe exit from the business or – if action is taken early – even see the company return to a point of profitability.
There are several different formal insolvency procedures for directors to consider.
Creditors’ Voluntary Liquidation (CVL)
As the most common form of company liquidation in the UK, a CVL offers a range of benefits to 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 an appointed liquidator, who sells the business’s assets for the benefit of the company’s creditors. Any remaining debts are written off. Liquidation fees are typically paid for by the proceeds raised through the liquidation itself.
Company Voluntary Arrangement (CVA)
For directors of insolvent companies who wish to avoid liquidation, a CVA may be the answer:
- 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. Once the agreed-upon repayment period is over, any remaining debts are liable to be written off. The process protects your company from closure so long as you meet your monthly repayments – if you’re struggling with unaffordable debts but your business is viable, a CVA may be the solution for you.
Administration
For companies who cannot get creditors to agree to a CVA but wish to avoid liquidation, administration could be the answer:
- Can potentially reverse insolvency
- Provides breathing space through a moratorium period
- Can increase the likelihood of being accepted into a CVA
While administration doesn’t offer any guarantees, having a fresh pair of eyes to assess the company’s affairs can help to get it back on its feet.
Speak to an Expert Today
If your business is facing insolvency, you should contact an insolvency practitioner as soon as possible.
Our expert team can provide you with the guidance and support you need, helping you to avoid further problems down the line.
Get in touch to book your free consultation today.
