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creditcontrol.co.uk
Business failures back on a rising trend
There was genuine surprise when corporate insolvencies suddenly dropped sharply in March this year and then again in May, but on a rolling 12-month basis, we are firmly back on an unwelcome up slope.
The variability of the individual monthly figures is shown by comparisons with the equivalent month last year: March 1,926 – down 19% vs. March 2023; April 2,451 – up 8% vs. April 2023; May 2,159 – down 19% vs. May 2023; and June 2,487 – up 8% on June 2023.
What isn’t in doubt is the huge rise every month compared to pre-pandemic levels. In every one of the past four months, the increase has been over 40% and in two of them well in excess of 50%.
Concerned by what is really happening on the business distress front as the Insolvency Service releases its statistics for June 2024, we asked Nick Hood, Senior Business Adviser at the Opus Business Advisory Group to drill down into the figures and come up with some conclusions.
“The final tally of insolvencies for 2023 saw the all-time record broken with 26,608 companies filing for one of the various formal procedures. The rolling 12-month figure up to June 2024 now stands at 26,688, just above that calendar year record and marginally below the peak of 27,013 for the 12 months to February 2024.”
“What is clear from a deeper analysis is that there is small but definite recovery in the number of business rescues being attempted through the Administration or Company Voluntary Arrangement (CVA) route. The rolling 12-month figure to June 2024 saw 2,006 of these cases, compared to only 1,613 up to June 2023, an increase of 24%. There is a way to go to reach the immediate pre-pandemic levels of 2,263 up to February 2020, but there is an identifiably positive trend indicating a rise in business confidence, even in the face of insolvency.”
“Which sectors are being affected the most by the record level of insolvencies? Ever since detailed industry analysis has been made available by the Insolvency Service, construction has fared worst. In the year to May 2024, it accounted for 17% of failures – 4,287 in all – reflecting endemic low margins, excess competition, supply chain abuse and poor levels of financial resources, especially for smaller sub-contractors.”
“Hospitality is probably the area most seriously affected by the pandemic and more recently by the cost-of-living crisis, which has severely restricted the spending power of so many consumers. There were 3,752 hospitality failures up to May 2024, some 15% of the total. Retail might be expected to match this level of distress, but has done better, seeing only 9% of corporate insolvencies. The final two badly affected sectors have been manufacturing and professional services, both experiencing an insolvency rate of 8% of the total.”
“Where will insolvency numbers head from here if more positive figures on the economy continue to emerge? GDP growth in May was encouraging at 0.4% (double expectations), inflation has plateaued precisely at the Bank of England’s target rate of 2% and the labour market has eased, although pay rises are still running hot at over 5%. Ironically, an improving economic background may bring a surge in failures as businesses with balance sheets still damaged by the pandemic expand too quickly and run out of cash.”
“The next few months’ insolvency statistics will be interesting indicators of whether embattled companies will benefit from a rise in business confidence and live to fight another day, following the change of government and its much-heralded dash for growth.”