With company insolvencies at their highest for over 30 years, we break down the reasons behind this increase and what you can do to reduce your risk of insolvency despite the challenging economic conditions
Recently released figures from The Insolvency Service, a government agency, show that the number of companies declared insolvent in England and Wales in February 2024 was 17% higher than in February 2023. 2,102 companies were declared insolvent, compared to 1,801 in February 2023, and 50% higher than numbers pre-COVID-19 in February 2020. In fact, this means that insolvencies have reached their highest level since 1993, with the biggest increases seen in the construction, retail, and hospitality industries.
What are insolvencies?
Insolvency can happen to an individual or company when they can’t meet their financial obligations and pay their debts. Depending on the circumstances, insolvency proceedings might be brought against them, or they can choose to enter voluntary liquidation. In both cases, assets will usually be liquidated and used to pay back creditors a percentage of the debts due.
While company insolvencies can sometimes be the result of poor management decisions, the increase seen in February 2024 is more likely to be due to challenging economic factors and pressures outside of companies’ control. Navigating a post-Covid landscape, the impact of Brexit, and global supply chain issues have all made being in business much more difficult for both large and small companies.
However, there are some factors that have made the transition from 2023 to 2024 even harder for companies and contributed to the rise in insolvencies:
High interest rates
Inflation – and the rising interest rates put in place to help bring it back under control – have severely impacted businesses. With Bank of England rates at a 16-year high, the cost of borrowing has escalated to a point where companies can’t rely on loans to cover the cracks and keep the lights on. This puts additional strain on businesses navigating slower seasons and can prevent them from surviving long enough to reach the peaks they rely on to stay open year-round.
High costs
One of the reasons why businesses may be looking for loans to help tide them over is due to the high costs they are facing. The cost-of-living crisis has had a dual effect on companies, making it more expensive for them to light and heat their premises, for example, while also limiting the amount of disposable income potential customers have available to spend. Many raw materials and ingredients have also become more costly, and wages have had to rise to keep up with inflation, cutting into already slim margins and making it even harder for businesses in non-essential sectors like hospitality to stay on top of their finances.
Voluntary liquidations
One more optimistic reason for the rise in company insolvencies may be due to voluntary liquidation. The higher rates of return on cash (due to rising interest rates) mean that owning a business that is only marginally profitable may no longer be appealing to entrepreneurs. These savvy businesspeople may choose to close these companies so that they can focus their attention and their financial backing on more profitable ventures instead.
How can I avoid insolvency?
If you’re concerned your company might be at risk of insolvency, there are steps you can take to improve your chances of navigating these tough times and staying in business:
- Make sure you are on top of your accounts so you can quickly spot any potential cashflow issues before they get out of control.
- Be realistic and objective about your business to avoid trying to expand too quickly or spending based on unfeasible potential profits.
- Seek professional advice to help you restructure your debts or agree new payment plans with your creditors.
- Optimise your operations and improve productivity by streamlining your services and cutting back on your non-essential expenses.
Looking for support with your company debts? Our friendly team of experts is here to help. Give us a call on 0161 8260 585 or send a message here
