UK Insolvencies Fall in Brief Respite for Struggling Firms

England and Wales recorded fewer insolvencies in April than a year earlier, indicating the number of failing businesses may be starting to stabilize.

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(Bloomberg) — England and Wales recorded fewer insolvencies in April than a year earlier, indicating the number of failing businesses may be starting to stabilize. 

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A total of 1,685 firms went bust last month, a drop of 15% compared with April 2022, according to the Government’s Insolvency Service. But that followed a 16% surge in March to 2,471, the highest number since monthly data began in 2019, as businesses were squeezed by the cost-of-living crisis.

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While April’s figure is lower than a year ago, when businesses were reeling from the withdrawal of Covid support, it is still higher than pre-pandemic levels.

And there were 183 compulsory liquidations, those initiated by creditors and ordered by a court, nearly twice the number of a year ago. The Insolvency Service said this number was partly as a result of actions brought by HM Revenue & Customs.

“It’s clear that in the current economic climate many creditors feel unable to accept an uncertain IOU and instead are having to pursue debts,” said David Kelly, head of insolvency at PwC.

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Creditors’ Voluntary Liquidations, where an insolvent company is shut down by its directors, fell 23% from last year. 

Challenging Environment

But all other types insolvency were up, in a sign that higher prices are still weighing on firms. This includes administrations, compulsory liquidations, receivership appointments and Company Voluntary Arrangements — agreements reached between a business and its creditors on how debts will be resolved.

Weekly data from the Gazette also indicated a fall in insolvencies may be short lived. While the overall figures for the week ended May 5 were largely unchanged on a year earlier, mainly due to a fall in the appointment of liquidators who shut down businesses, appointments of administrators – who help companies unable to pay their debts to gain temporary relief from creditors – were up 125%.

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Carla Matthews, head of contentious insolvency and asset recovery at PwC, said the fall in monthly insolvencies was “encouraging on the surface.”

“However, we’re not out of the woods yet,” she said. “The trading environment remains challenging for business, and while energy costs are starting to drop, both inflation and the cost of servicing debt remains stubbornly high, with commodity prices continuing to cause pressure across a range of sectors.”

David Hudson, restructuring advisory partner at FRP, said he was expecting the volume of administrations to grow as higher interest rates weighed on companies’ abilities to manage their finances and access debt.

“Any hike in the base rate increases borrowing costs and tightens the availability of credit, making day-to-day business financing challenging,” he said. “For firms, this could hold back growth opportunities, but also make it hard to fill shortfalls in cash – potentially the final straw for businesses already showing signs of distress.”


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