The latest statistics for UK insolvencies published by The Insolvency Service have prompted some comment about the apparent surge in businesses being liquidated through the creditor-enforced Compulsory Winding Up (CWU) route, with some suggestions that creditors are being far tougher on struggling debtors.

Compulsory Winding Up – comparison with 2022

The figures for the seven months to July 2023 showed that there were 1,848 CWUs across the UK, which is certainly a far higher number than in the equivalent period of 2022, when there were only 992. This suggests a rise of 86%. The trouble with this statistic is that for the first three months of 2022, the pandemic prohibition on the use of winding up petitions to push businesses into a Compulsory Winding Up was still in place, so the comparison is highly misleading.

Compulsory Winding Up – comparison with 2019

To get any meaningful picture of the current state of the Compulsory Winding Up market, it’s essential to go back to pre-pandemic in 2019. This picture is very different. Back then in what seems like a far off commercial world, there were 2,334 CWUs in the first seven months – 21% higher than this year so far. Essentially, we are not yet back to the more normal levels of creditor enforcement before Coronavirus struck.

Should we be worried about future trends?

Taking all kinds of formal corporate insolvency procedures into account, UK insolvency filings in the first seven months of 2023 were 35% up on 2019. This suggests that CWU numbers have much further to go to get back to pre-pandemic norms. Applying that logic to the 2023 numbers, it might have been expected that there would have been 3,150 CWUs so far, not the actual figure of 1,848 – a deeply worrying potential increase of over 1,300.

The numbers of the alternative director-led liquidation procedure of a Creditors Voluntary Liquidation (CVL) have been rising sharply for well over a year, so it may be that some of those failures might have gone down the CWU road in previous times. There is no objective way to know this, nor whether creditors are being more lenient in letting directors close down struggling businesses through a CVL rather than forcing them in a CWU.

Worrying times across the economy

The UK economy is doing little more than bumping along the bottom. Q2 2023 GDP growth was a barely discernible 0.2% after an even smaller rise in Q1 of 0.1%. The Centre for Economics and Business Research (Cebr) are now predicting that there will be a recession with negative growth in Q4 2023 and Q1 2024. An only slightly more optimistic view comes from the British Chambers of Commerce, who see no recession ahead but seriously anaemic growth of only 0.3% in 2024 and 0.7% in 2025.

The Cebr prediction is for 7,000 corporate insolvencies per quarter in 2024, producing a total of 28,000 for the year, which would make it the worst since records began and beating the previous record of over 26,000 in 2009 during the global financial crisis. How many of these will be CWUs?

Avoiding a Compulsory Winding Up

Few business rescue or insolvency professionals would ever advise the directors of a struggling business to sit back and allow a creditor to force them into liquidation, certainly not unless the situation was utterly hopeless and perhaps if there were no resources to fund a CVL or another insolvency procedure.

No liquidation is pleasant, but even fewer directors would say after going through a Compulsory Winding Up that it was anything except a wretched and detrimental experience, where all control was taken out of their hands in a process that can often lack the benefit of any the ‘soft’ skills deployed by private sector insolvency professionals conducting a CVL and seeking to maximise the outcome for creditors.

Details of the CWU process can be found here.

You may also be interested in “Why a Winding Up Petition may not be the end of the line”, which you can read here.

Getting expert advice and getting it early

If creditor enforcement can be resisted and an alternative route can be followed to address an embattled business’s problems, this must surely be the right way to go. This will mean calling in experienced business rescue professionals to advise and help as soon as the risk of creditor action has been identified.

The fact that a creditor has lost patience and taken action does not mean that liquidation is inevitable, either a CWU or a CVL.  A rescue through an Administration or a Company Voluntary Arrangement (CVA) could be a far better option. There may even be scope for a consensual work out with creditors without any formal insolvency process.

Unfortunately, time waits for no struggling business, so the sooner the expertise and knowledge of seasoned professionals are wrapped round the business and its issues, the better the outcome is likely to be.

Find out more about how we can help your business

If you are a business owner that is looking for professional advice, 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.