Insolvency storm is a long way from blowing over

November 14, 2023

Soaring interest rates and stubborn inflation forced 2,315 businesses into insolvency in October 2023, up 18% on the same month last year and above pandemic levels. The vast majority (82%) were Creditors Voluntary Liquidations (CVLs) – directors throwing in the towel  while they could still make the decision.

Compulsory liquidations hit 256, a shade higher than in September and continuing the surge in winding-up petitions presented by HMRC for unpaid tax. Retailers and hospitality firms were among the sectors most affected by firms becoming insolvent. More than 21,000 retail jobs have been lost in the UK so far this year, almost half of which resulted from the fall into administration of major high street group  Wilko. Expect several further retail insolvencies in the remainder of the year.

The immediate problem facing businesses is that of high wage expectations, in a market where pay rise are presently exceeding inflation. This is an important reason why the Bank of England is managing expectations about interest rates easing in the foreseeable future. Nonetheless, it shouldn’t be forgotten that a large number of businesses emerged from Covid already with too much debt. The prospect of servicing those borrowings at steeply higher rates was far from their minds, even 18 months ago. Expect CVLs to remain at pre-pandemic levels for the foreseeable future, while company compulsory liquidations will continue to be driven by HMRC, after an extended period of Covid-related forbearance.

Individuals operating close to the financial edge may face the same fate, although insolvencies for individuals fell 9% on an annual basis in October, apparently owing to a 27% decline in the number of Individual Voluntary Arrangements. In addition, breathing space applications – which hold off creditor action for 60 days so that people in debt can reorganise their finances – were significantly higher than a year ago.

All debtors, business and personal, must be proactive in seeking advice and engaging with creditors:

  • Explore and exhaust all possible restructuring options before reaching for a CVL – your business may be capable of gaining a second wind, with the right breathing space
  • Stay on the front foot with HMRC. Engage and explore a time to pay arrangement. Being unresponsive only aggravates tax authorities and hastens legal action
  • Revisit repayment profiles for loans and propose realistic, achievable amendments. A loan that remains serviced, albeit differently, is still profitable for a lender.
  • Consider the moratorium framework to gain a short period of “breathing space” while pursuing a rescue or restructuring plan. During this legal moratorium no creditor action can be taken against a company without the Court’s permission.
  • For personal debtors, explore the Debt Respite Scheme to allow time to address your situation. Information on this, as well as debt support for those in poor mental health, is available here.

Dealing with significant creditors, such as HMRC, banks and landlords, is a complex process to be navigated carefully. Businesses negotiating with these parties might consider professional advice and representation.

This article is written by Jo Milner, Managing Director at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.


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