The UK Insolvency Service has released the August 2024 company insolvency statistics, highlighting key trends across England, Wales, Scotland, and Northern Ireland. The report offers a critical snapshot of the financial health of UK businesses, with particular focus on the number of insolvencies, types of insolvency procedures, and economic pressures affecting businesses.
Introduction
The UK Insolvency Service has published the August 2024 Company Insolvency Statistics, providing key insights into the state of UK businesses. In August, there were 1,953 registered company insolvencies across England and Wales, which is 9% lower than July 2024 (2,144) and 15% lower than August 2023 (2,286). Although these figures reflect a decrease, insolvencies remain significantly higher than pre-pandemic levels.
This report delves into these numbers, offering a comprehensive analysis of the types of insolvency procedures, sector trends, and the broader economic factors influencing insolvency rates.
Key Trends in August 2024
Total Registered Company Insolvencies:
1,953 insolvencies were recorded, down 9% from July and down 15% year-on-year. Despite the monthly and annual decreases, insolvency rates remain elevated compared to historical norms.
Creditors’ Voluntary Liquidations (CVLs)
CVLs made up the majority of cases, accounting for 1,542 insolvencies (around 79% of the total).
Compulsory Liquidations
There were 279 compulsory liquidations in August.
Administrations
A total of 112 administrations were recorded.
Company Voluntary Arrangements (CVAs)
There were 20 CVAs in August, allowing businesses to restructure debt agreements with creditors while continuing operations.
Sector and Regional Insights
Although specific sector breakdowns are not provided in the report, industries reliant on consumer spending, such as retail and hospitality, are likely contributors to the high insolvency numbers. Rising operational costs and weak demand continue to challenge these sectors. Similarly, manufacturing businesses face difficulties due to increased production costs and ongoing supply chain disruptions.
On a regional level, insolvency trends often reflect the economic landscape of each area. Regions with higher concentrations of struggling industries, particularly Northern England and Wales, may have seen more insolvencies. In addition, regions where SMEs (small and medium-sized enterprises) are a significant part of the economy tend to experience higher insolvency rates due to these businesses’ heightened vulnerability to economic shocks.
Year-on-Year Comparison and Historical Context
The 15% decrease in insolvencies compared to August 2023 marks a positive development, though the figures remain higher than the pre-pandemic levels seen between 2014 and 2019. For context, the peak insolvency rate during the 2008-09 recession reached 113.1 per 10,000 companies. The rate for the 12 months leading to August 2024 stood at 55.5 per 10,000 companies (or 1 in 180 businesses), slightly higher than the 55.4 per 10,000 rate from the previous 12-month period.
Breakdown of Insolvency Procedures
Creditors’ Voluntary Liquidations (CVLs)
CVLs remain the most common type of company insolvency, representing nearly 79% of the total cases in August 2024. This high percentage suggests that many businesses are voluntarily closing down operations due to financial pressures before they are forced into compulsory liquidation by creditors.
Compulsory Liquidations
Compulsory liquidations accounted for 279 cases in August. The rise in creditor-led actions indicates that many businesses have become insolvent to the point where creditors are seeking legal intervention to recover unpaid debts.
Administrations
The 112 administrations in August reflect businesses attempting to restructure or salvage operations before insolvency leads to liquidation. This process is used to give companies a chance to reorganise debt and avoid winding up entirely.
Company Voluntary Arrangements (CVAs)
Although CVAs only accounted for 20 cases, they remain a valuable tool for larger companies facing significant debt obligations. CVAs allow businesses to negotiate terms with creditors and develop a repayment plan, potentially avoiding full insolvency.
Economic Factors Contributing to Insolvency Rates
Several economic factors have played a role in the number of insolvencies during 2024:
High Inflation
Continued inflationary pressures have driven up operating costs for businesses, particularly those in energy-intensive sectors. Higher input prices and rising wages have squeezed profit margins.
Interest Rate Hikes
The Bank of England’s tightening of monetary policy, through consecutive interest rate hikes, has increased borrowing costs for businesses. This has led to higher debt-servicing costs, particularly for companies that rely on loans to finance operations.
Consumer Demand
Weak consumer demand has particularly affected retail and hospitality, where discretionary spending has been reduced due to the rising cost of living.
End of Government Support Schemes
With the expiry of government support schemes such as the furlough programme, businesses no longer have access to financial assistance that helped sustain them through the pandemic. This has exposed many struggling businesses to financial difficulties.
Outlook for the Coming Months
Looking forward, the UK insolvency landscape is likely to remain challenging. Inflation may continue to pressure businesses by raising operating costs, and the cost of borrowing is expected to stay elevated for the foreseeable future. SMEs, which are more vulnerable to economic shocks, are particularly at risk, especially in sectors like retail and hospitality.
Directors should remain vigilant and seek professional insolvency advice early if they see warning signs of financial distress. Understanding the legal obligations and available options—such as administration or voluntary liquidation—can help businesses manage financial difficulties and potentially avoid compulsory liquidation.
