The calendar year 2023 gave us the unwelcome statistic of the highest annual figure for business failures on record, as 26,766 companies across the whole UK went into one or other insolvency procedures. Since then, the rolling twelve-month total rose almost uninterrupted until it reached 27,188 in July 2024.

The publication of the latest corporate insolvency number of 1,976 for October was greeted by cautiously positive reactions to a drop of around 5% on September 2024’s figure and a startling 19% reduction compared to October 2023. That said, we are still a long way up on immediate pre-pandemic levels when failures were almost a quarter lower.  The rolling total has come right back down to 26,049.

An exception to this trend is Scotland, where insolvencies for October showed a dramatically different picture from the national outcome. Scottish corporate insolvencies jumped a huge 59% compared to September 2024 and by 18% compared to October 2023. The rolling twelve-month total for Scotland is now very close to the all-time high recorded in July 2024.

Rising creditor enforcement action

While there’s no doubt that levels of insolvencies have stabilised and fallen a little, the overall statistics hide a worrying increase 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 is the leader of the creditor pack. Back before the pandemic, Compulsory Liquidations accounted for 20% of insolvencies, so we can see where the current trend might lead. It certainly won’t be easier times for cash-strapped businesses.

Fewer businesses are throwing in the towel

By contrast, 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.

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

Business rescue has stalled

Administration is the preferred formal route for preserving and restoring struggling businesses. After peaking at 12% of insolvencies in 2020 and running at around 10% in the years leading up to the COVID crisis, the use of this procedure has dropped dramatically to only 6% since the end of the pandemic.

This is despite improvements in the availability of rescue funding and seems likely to reflect the ongoing damage sustained across the economy during the pandemic, followed by the ripple effect of the Ukraine war and then rampant inflation. In the current low-growth/no-growth environment, there seems little prospect that Administration numbers will rise significantly any time soon. The latest Budget measures are more likely to kill businesses than make them turnaround opportunities.

What’s next for the business world?

Unfortunately, the October insolvency numbers followed hard on the heels of a business-bashing Budget. So we now have a new and disturbing elephant about to rampage around the business room next April, in the form of the government’s neat trick of simply picking up the alleged £22bn black hole in the public finances and dumping it straight onto the cost base of British business in the form of £25bn of extra employers’ National Insurance costs.

At the same time, the National Minimum Wage was increased by 6.7% for lower paid staff and even more for those under 20 and for apprentices. Finally, Business Rates were effectively doubled for many businesses by the cutting of the relief for smaller premises from 75% to 40%.

All of this will impact businesses starting next April, which was announced amid vehement complaints from sectors such as retail and hospitality, which are due to be hardest hit from next April. UKHospitality predicts a £3bn annual hit from next April, while the British Retail Consortium forecasts an even bigger blow of around £7bn.

In addition, 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 costly but also much more complicated and full of HR pitfalls.

The business community is still reeling from all these factors, but it remains to be seen whether this eventually translates into elevated failure rates. The recent flattening and reversing of the insolvency trend may turn out to be the lull before a post-Budget storm.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.