Groundhog day?

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Oliver Collinge, Director and specialist in resolving financial distress looks at the latest insolvency statistics for Q2 2023. While the latest insolvency numbers may look daunting, this isn’t a re-run of 2008.

When it comes to reporting on insolvency the media tends to focus either on high profile failures or headlines around soaring insolvency numbers. So, with Wilkos in the news on an ongoing basis and headlines about record levels of insolvencies (The Times: ‘Worst year for insolvencies since the financial crisis’, The Guardian: ‘Company insolvencies hit 13 year high’), you could be forgiven for thinking the corporate landscape resembles a blood-soaked battlefield. But you’d be wrong.

It’s true that in the latest quarterly statistics (Q2 2023) corporate insolvency numbers hit their highest level since the Credit Crunch: they reached 6,717, a number only exceeded this millennium in Q4 2008 when they hit 7,015. But regular readers will recall from our pieces looking at the previous two sets of quarterly statistics, that the rapidly rising trend of corporate failures was almost exclusively driven by smaller company insolvencies rather than larger corporate failures.

And not much has changed: Creditors Voluntary Liquidations – largely used for small companies – accounted for 81% (5,490) of these failures – whereas Administrations (usually indicative of a large company) accounted for 5.5%. Whilst there was an uptick in Administrations compared to the prior quarter (from 346 to 422) – which might hint at a future trend – the number of companies going into Administration is still below the average rate in the two years prior to COVID – when corporate failures were at a more-or-less normal level. This figure of 422 compares to 2,078 at the height of the Credit Crunch when Administrations accounted for 30% of total insolvencies.

We’ve looked in previous articles at redundancy numbers as a measure of the wider economic impact of insolvencies and, again, these are nowhere near Credit Crunch levels. At their worst during the Credit Crunch quarterly redundancies were 300,000 (Q1 2009), compared to 108,000 in Q2 2023. Again the numbers are rising but they are basically just back to the level that they averaged in the five or six years before the Pandemic.

One other notable feature of the statistics is Compulsory Liquidations – where a creditor forces a company into Liquidation through court action (issuing a winding up petition). For 18 months during COVID the government introduced severe restrictions on the circumstance in which a winding up petition could be issued, to provide breathing space for business struggling because of lockdowns. There was a widespread expectation that, once these constraints were lifted, there would be a flood of winding up petitions as creditors sought to exercise their restored abilities to take court action. And whilst there has been a large increase – the average over the last three quarters is 780 compulsory winding up orders per quarter compared to 200 per quarter during COVID – the current level is still somewhat below the pre-COVID average. It’s possible that court capacity may be playing a part here – effectively putting a limit on the number of companies which can actually be wound up at any one time.

None of the above is to say that there isn’t more painful news on the horizon. As a practising Insolvency Practitioner it feels as though there is increased distress in the economy and we are seeing an uptick in larger business seeking our support, but it remains to be seen whether this is reflective of the wider market. For now, at least, despite the headlines, the insolvency statistics are not a cause for unusual concern.