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News & Views

Are we past peak insolvency? We ask Opus​
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The publication of the October corporate insolvency number of 1,976 failures for the UK as a whole followed hard on the heels of a business-bashing Budget and was announced amid howls of protest from sectors such as retail and hospitality due to be hardest hit from next April.  

Even so, there were cautiously positive reactions to a drop of around 5% on September 2024’s figure and a startling 19% reduction compared to October 2023.  Nevertheless, we are still a long way up on immediate pre-pandemic levels when failures were almost a quarter lower.  

Speculating that perhaps we had seen the worst of the post-pandemic and Ukraine War insolvency surge, we asked Nick Hood, Senior Adviser at the Opus Business Advisory Group whether he agreed that better times lie ahead for struggling businesses.

“There’s no doubt that levels of insolvencies have stabilized and fallen a little, but the overall statistics hide a worrying rise in creditor enforcement action through Winding Up Petitions and Compulsory Liquidations of companies through the courts.  These were 15% of insolvencies in October 2024, compared to only 12% a year earlier.

Unsurprisingly given the parlous state of the public finances, HMRC are the leaders of the creditor pack.  Back pre-pandemic, Compulsory Liquidations were 20% of insolvencies, so we can see where this trend might lead, and it won’t be to easier times for cash-strapped businesses.

On the other hand, Creditors Voluntary Liquidations (CVLs) are reducing slightly, down from 80% in October 2023 to 79% in October this year.  The major driver for the surge in insolvencies in 2023 and into this year was CVLs, where directors called a halt voluntarily rather than being forced over the financial cliff by their creditors.

The factors behind this were many, but chiefly the terminal damage caused to some companies’ business models by the pandemic and the effects of commercial battle fatigue.  Over borrowing from government Coronavirus loan schemes proved unsustainable for some smaller businesses, which sadly found bouncing back beyond them.  There has been a feeling recently that these issues are diminishing.

However, we now have a new and disturbing elephant about to rampage round the room, in the form of the government’s neat trick of simply picking up the alleged £22 billion black hole in the public finances and dumping it onto the cost base of British business in the form of £25 billion of extra employers’ National Insurance costs.  Oh yes, and hiking the National Minimum Wage by 6.7% for most lower paid staff and even more for those under 20 and apprentices.   And even more, doubling Business Rates for many businesses, especially smaller ones.  All of this hits businesses next April.

On top of this, business owners and managers know that major changes are coming to employment rights, although not until after a two-year consultation period.  But they will happen, even if in a modified manner.  This new landscape will make doing business not only more expensive, but much more complicated, and full of HR bear traps.

We are still at the tearing out of hair and gnashing of teeth stage in terms of reaction to all of this, most especially by the sectors which will be hardest hit, such as hospitality, retail and leisure.  How this eventually translates not just into staff cuts, reduced pay rates and slashed investment plans but also into elevated failure rates remains to be seen.

So, the recent flattening and reversing of the insolvency trend may turn out to be the lull before a post-Budget storm.” 

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