Fran Henshaw, North West Chair of R3, the UK’s insolvency and restructuring trade body, comments on the publication of the April 2024 insolvency statistics for England and Wales:

“The last year and the last quarter have seen corporate insolvency numbers reach a level not seen since the previous recession in 2008-09. The fact the UK had entered a recession (albeit relatively modest) during the last two quarters of 2023 was a contributing factor, however the recession would appear to have been short lived with a better than expected growth in GDP of 0.6% between January and March which has largely cancelled out the recession itself.

“Against this backdrop, inflation is falling and the Bank of England have held interest rates for a further month, with market speculation abundant as to whether and when a cut is on the cards. Corporate registrations are at a record high, so there are factors at play which suggest some return of business confidence, if not consumer confidence with cost-of-living pressures still playing their part. Working out what is going on is therefore becoming more nuanced than simply blaming the pandemic, cost of living, inflation and interest rates.

“The annual and monthly increases in corporate insolvencies shown in the figures published today have been driven by an increase in all types of corporate insolvency process, but the key areas which stand out are the increases in Creditors’ Voluntary Liquidations (CVLs) most of which relate to small and medium sized companies – the process which has seen the largest rise (after a brief decline in March) – and administrations.

“One factor in the increase in CVLs is likely to be down to directors closing their business at the end of the financial year – either because they believe the market won’t improve or because they’ve simply had enough after four tough years. Another possibility could be difficulties in small businesses in distress being able to access more complex and more expensive forms of restructuring, and having to resort to liquidation as a means of dealing with unserviceable debt.

"While the increase in administrations isn’t by a large number, it does suggest that there are an increasing volume of businesses that could potentially be rescued rather than wound-up and as the economy recovers we would anticipate this rise will continue. We will need to keep a close eye on this, as the trendline is upwards and the causes are not clear against a backdrop of an apparent increase in business confidence and the so-called 'green shoots' of economic recovery. One would expect liquidations to level out or decline, as rescue mechanisms begin to replace closures – but we shall have to wait and see.

“The sectoral data we have available shows that the construction, retail and hospitality sectors continue to experience the highest insolvencies this year so far. Retail and hospitality businesses have been especially affected by consumers’ wariness about spending money, poor weather in February and a tough pre-Christmas trading period. Issues with the weather will also have affected the construction industry, as will the fall in new work it has suffered from since the start of the year.

“Despite the difficult business climate over the period these figures cover, there is some cause for optimism. The economy is growing again and business and consumer confidence are both improving, and while businesses remain concerned about costs and consumer demand, the mood is generally more positive with a significant increase in new company registrations being reported by Companies House.”

Fran, who is Head of Corporate Recovery and Insolvency at Beever and Struthers, continues: “Turning to personal insolvencies, the key factor behind the month-on-month and year-on-year increase has been a rise in the number of Debt Relief Orders – a trend which was expected after the Chancellor announced he was removing the administration fee from the start of April.

“Breathing Space numbers have fallen compared to last month, but are still higher than they were in April 2023 and 2022. When this is considered alongside the numbers for the other personal insolvency processes, it’s clear that a significant number of people are in need of either debt advice, or debt solutions. Based on the figures, it seems the majority of these people are choosing to either seek protection from creditor action while they explore their options, or enter processes that enable them to come to an arrangement with their creditors when it comes to repaying their debts.

“It’s also very clear the cost-of-living crisis is still taking a toll on people’s finances. Prices are continuing to rise despite the fall in inflation, and we’re hearing reports of people turning to credit to bridge the gaps in their finances. Despite these issues, the mood among consumers is becoming more positive – people seem more optimistic about their personal finances over the next year, although it’s worth noting that the future of the economy, the cost of living and concerns around job security remain key areas of concern.

“While the picture seems to be more positive for businesses and individuals, and consumers seem more optimistic about the weeks and months ahead, people in the North West still need to keep a close eye on their personal and business finances and seek advice as soon as they become concerned that they are having problems or could have them in the near future. Most North West R3 members will provide a free consultation to potential clients to learn more about their situation and outline the potential options that could be open to them for improving it.”