According to official statistics, corporate insolvencies in England & Wales reached their highest level in 1993 last year. This highlights the challenges faced by companies due to a slowing economy and high production costs.
The Insolvency Service reported that there were 25,158 company bankruptcy registered in 2023. This is up 13.7% from the previous year and the highest number in 30 years.
The number of voluntary liquidations was 20,577, which is 9 percent higher than 2022. This is the highest since 1960.
Insolvency is a formal measure taken by a company when it cannot pay its debts. The high numbers in 2023 show the pressures that businesses are under as the economy stagnated and borrowing costs rose.
Nicky Fisher of R3, UK’s Insolvency and Restructuring Trade Body, stated that the “rising wave” of corporate bankruptcy was due to “a combination increased costs, prudent spending, creditor pressurization and the post pandemic hangover”.
She added that unless the economy improves and costs drop, insolvency rates will likely remain high.
Markets expect that the Bank of England will cut interest rates in June, after keeping them at 5.25 percent on Thursday.
Separate figures released Tuesday showed that mortgage approvals rose to a six month high. Data released last week revealed that business activity increased at the fastest rate in seven months in January.
Simon Edel, UK restructuring and turnaround strategy partner with the consultancy EY-Parthenon warned that despite more recent positive economic data there was a growing divide between companies able to ride the wave of recovery and those who were too mired in financial or operation issues to benefit.
Insolvencies increased to 53.7 per 100,000 active companies in 2023 from 49.6 per 10,000 in 2022, the highest rate since 2014. However, this is still lower than the peak of 94.8 per 1,000 active companies during 2008/09’s financial crisis.
Insolvencies in almost all sectors increased, but the hospitality sector was particularly affected by high inflation which curbed consumer spending. More than 3,700 liquidations were reported in the hospitality sector, a 37 percent increase from the year before. Insolvencies in the retail and wholesale trade rose by 20 percent, while manufacturing insolvencies increased by 18 percent.
Construction was the sector that suffered most insolvencies. Kelly Boorman is the national head of RSM UK’s construction sector. She said that the industry had been affected by a decline in demand, disruptions to supply chains, rising material prices, and a shortage of labour.
She added that “[in 2024] there are some reasons for cautious optimism, as interest rates will stabilise, and inflation will continue to fall. This means businesses can expect to start seeing funding become more readily available in the later part of the year.”