UK (Commonwealth) _ According to official data, last year witnessed the highest number of company insolvencies in England and Wales since 1993. However, when adjusted for an increase in the overall number of firms, the rate of business failures was not as high as it was during the 2008–09 financial crisis.
A government body in Britain, the Insolvency Service, reported that 25,158 businesses were declared insolvent in 2023 compared to 22,123 in 2022. According to the most recent data, the number of businesses that failed in England and Wales last year reached a 30-year high.
2023 saw the biggest number of corporate insolvencies since 1993—more than 25,000—as a result of businesses’ struggles with growing expenses and interest rates. Businesses had to pay more for electricity, and the problem in the cost of living was putting pressure on consumer spending. According to the latest data, 1 in 186 operating businesses failed in 2023.
Although their bankruptcy rules differ from those of England and Wales, Scotland and Northern Ireland saw the greatest levels of corporate insolvencies last year since 2012 and 2019, respectively. A “perfect storm for financial distress” has caused thousands of firms to fail, according to Julie Palmer, a partner at bankruptcy expert Begbies Traynor.
This included inflation, low consumer confidence, growing input prices, and interest rates at levels we hadn’t seen in more than ten years, all of which increased the cost of borrowing. According to data from the Insolvency Service, the number of businesses in England and Wales that closed voluntarily in 2022—also known as creditors’ voluntary liquidations, or CVLs—rose by 9% to 20,577, the largest since records have been kept in 1960.
The number of businesses that had to close—known as compulsory liquidations—rose by 44% to 2,827. The number of companies declaring bankruptcy reached a 30-year high in 2023, but as more companies are now registered in the UK, the rate of insolvencies last year was still far lower than the record rate of 94.8 insolvencies per 10,000, active businesses throughout the recession of 2008–2009.
Retailer Wilko was the most well-known casualty of the High Street last year. More than 12,000 jobs were lost as a result of its failure. Experts predict that this year would likely be challenging for UK companies as well. According to Jane Steer, a partner in PwC’s restructuring practice, “businesses are concerned that the challenging outside factors will continue throughout 2024, and diminish possibilities of a decrease in insolvencies.”
With inflation expected to decline, many firms will be hoping that the Bank of England would lower interest rates this year. Mazars, an accounting agency, stated earlier this week that the construction industry was going through a “very challenging time,” with over 4,000 building companies failing last year.
It stated that as a result of businesses’ spiraling expenses for financing, labor, and supplies, closures had increased by 7% over the prior year. Additionally, Mazars reported that during the previous three years, the construction industry has witnessed more bankruptcies than any other industry.
The greatest interest rates in over 16 years, sharp rises in energy costs and employee pay, and erratic demand as rising inflation drove many people to cut down on non-essential expenditure have all put pressure on British firms.
Financial markets, however, anticipate that the BoE will start lowering interest rates in May or June. However, an impending rise in the federal living wage is probably going to have a significant impact on the retail and hospitality sectors. Due to increased mortgage rates and a decline in the property market, construction companies are also suffering.
Financial markets, nevertheless, anticipate that the BoE will start lowering interest rates in May or June. By then, inflation is expected to have reached a 41-year high of more than 11% in 2022, which is not far from the central bank’s 2% objective.
Since there are now far more registered businesses in England and Wales than there were in the past, the Insolvency Service said that the rate at which firms became bankrupt provided a more accurate indicator of long-term trends. Out of 10,000 trade enterprises, 53.7 were bankrupt last year, an increase from 49.6 in 2022. Although far lower than the rate of 94.8 during the 2008–2009 recession, this was the highest rate since 2014.
Due to restrictions on creditors’ ability to file lawsuits and 77 billion pounds ($98 billion) in government-sponsored COVID-19 emergency loans, company insolvencies in England and Wales reached their lowest point since 1989 in 2020. The most corporate insolvencies were reported in Scotland and Northern Ireland last year—two jurisdictions with bankruptcy rules distinct from those in England and Wales—since 2012 and 2019, respectively
