Number of UK Company Insolvencies

While the volume of insolvencies fell by 5% in 2017-18, the result of markets overcoming the initial panic of the shock referendum result and as businesses with seemingly the weakest balance sheets had already been pushed out of the market, the volume of insolvencies reverted back to growth in 2018-19 (+13.9%), with growth continuing through 2019-20 (+1.3%). Economic and political uncertainty persisted and intensified, with the general nature of the UK’s withdrawal from the EU bloc not becoming more transparent until the EU-UK Trade and Cooperation Agreement was ratified on 1 January 2021. In select business markets, lead generation continued to suffer post-referendum, consequent of a fragile market backdrop and an air of pessimism among economic agents, which caused operational and financial woes among many across the economy.

In Q1 2020, the number of companies liquidating, falling into administration, or otherwise filing for CVAs remained high and in line with the long-term average; as per TIS data, there were 4,007 UK company insolvencies in Q1 2020, marking the fifth consecutive quarter that the quarterly volume of UK company insolvencies was reported to be in excess of 4,000. Towards the tail-end of 2019-20, an exogeneous economic shock caused by the COVID-19 (coronavirus) pandemic, and its resultant immediate impact on markets and their supply chains, blighted business activity; that is, public health restrictions mandated to combat the spread of coronavirus resulted in temporary business closures, reduced output capacity, and so forth which, in turn, led to substantial lost revenue in market sectors across the UK economy. Accordingly, for entities' whose cash balance deteriorated instantaneously, and for businesses already saddling with financial difficulties which came under further cashflow pressures, were faced with insolvency. While business support schemes were introduced, the extent of cashflow difficulties among companies in critical financial distress meant that many were unable to escape insolvency during the early stages of the first national lockdown, hence the relatively high volume of company insolvencies reported in Q1 2020.

The UK government, however, introduced numerous supportive measures - these included temporary business rate relief, business support grant funds, job retention schemes and other policy and funding mechanisms - to help businesses weather an economic storm consequent of coronavirus. Meanwhile, on 28 March 2020, the UK government announced new insolvency measures to prevent businesses unable to meet debts, due to the impact of coronavirus, from being forced to file for bankruptcy. For instance, wrongful trading law, introduced into UK insolvency law in 1986 and making it an offence for a company director to continue to trade if they know the business is unable to avoid going into liquidation, was suspended until the end of September 2020, allowing directors of companies to pay staff and suppliers even if there are fears the company could become insolvent. Moreover, the UK government imposed a temporary moratorium for businesses undergoing a restructuring process, during which time said companies could not be put into administration by creditors and would continue to be able to access all raw materials. Supportive measures, particularly those of the financial variety, and temporary policy reform helped to supress the number of company insolvencies in the 2020-21 fiscal year. As per TIS data, the total volume of UK company insolvencies decreased by 29.2% quarter-on-quarter in Q2 2020 and remained below the 3,000 insolvencies mark on a quarterly basis in Q3 2020, Q4 2020 and Q1 2021 – overall, they declined by 36% in 2020-21. According to a joint publication by the ONS and TIS, "the reduction in company insolvencies in the [then] latest quarter compared with last year was likely to be in part driven by the range of Government support put in place to financially support companies in response to the coronavirus (COVID-19) pandemic. The Government also announced in late April that it would temporarily prohibit the use of statutory demands and certain winding-up petitions from 27 April to 30 June 2020. This was further extended to 30 September under the Corporate Insolvency and Governance Act and in August 2020 was further extended to 31 December 2020".

While the plethora of coronavirus business support measures intend to safeguard the UK company insolvency rate from growing exponentially, the fact that there were a number of cash-strapped, or otherwise financially pressured, firms and businesses in the UK market which were severely hit by economic shockwaves, effectively meant that once state support measures were, the threat of insolvency proved prominent among the many. Troubled businesses faced accruing liabilities as support measures were wound down; in turn, company failures increased. According to insolvency specialist and corporate restructuring firm Begbies Traynor, which suggested many businesses were on “artificial life support” during the crux of the pandemic, more than half a million UK companies were in "significant distress" financially in the three months to September 2020, based on data from court orders to pay off debts, representing an increase of circa 6% compared to the previous three-month period. With the increase in cashflow pressure coming in spite of a backlog of court actions that prevented legal orders being issued against companies to pay their debts, and in spite of the temporary ban on winding up petitions for COVID-related debts, and with many business support schemes expiring, a wave of corporate failures occurred, with the number of UK company insolvencies rising by 54.1% in 2021-22 alone. With inflationary pressures mounting and supply chain difficulties at their most severe, business liquidations have continued to rise through H1 2022, and it is expected that overall, UK company insolvencies will increase by a further 15.5% in 2022-23 to reach 20,593 – companies are faced with a “perfect storm” of exponentially increasing commodity and energy prices, supply chain disruption, and a tightening cost of living squeeze which, together, have pressured business prospects.