The latest figures from the Insolvency Service indicate a positive trend for businesses in England and Wales, with a 6% decrease in business insolvencies in May 2024 compared to the previous month. In total, 2,006 business insolvencies were recorded, a significant improvement from April 2024’s figure of 2,144. Even more encouraging is the 21% decline from May 2023, when the total was notably higher.
Breakdown of Insolvency Types
The May 2024 data on business insolvencies includes:
- 271 compulsory liquidations
- 1,590 creditors’ voluntary liquidations (CVLs)
- 126 administrations
- 19 company voluntary arrangements (CVAs)
CVLs, which accounted for 79% of all company insolvencies, saw a 5% decrease from April 2024 and a 26% decrease compared to May 2023. Despite this decline, CVLs remain significantly higher than pre-pandemic levels, indicating that many directors are choosing to close their businesses after enduring several challenging years.
Sectoral and Monthly Variations
While CVLs and administrations were both lower than in May 2023 and April 2024, compulsory liquidations showed a mixed trend. Although 10% lower than in April 2024, compulsory liquidations were 27% higher than in May 2023. Administrations also saw a 13% decrease from April 2024 and were 20% lower than in May 2023. CVAs, although less common, were 37% lower in May 2024 than the previous year but showed a slight increase of 6% compared to April 2024.
Expert Insights
Tim Cooper, President of R3, the UK’s insolvency and restructuring trade body, commented on the latest figures:
“The month-on-month fall in corporate insolvencies is driven by lower numbers of Administrations, Compulsory Liquidations, and Creditors’ Voluntary Liquidations (CVLs). The reduction compared to May 2023 is mainly driven by a fall in Administrations and CVLs. However, corporate insolvency levels are still higher this month than in May 2019 due to a significant increase in CVLs.”
Cooper noted the ongoing challenges businesses face:
“The business climate remains challenging due to various short and long-term issues, including inflation, cautious consumer spending, and high energy and fuel costs. Short-term issues like the wet weather in April and May have also impacted sectors such as construction, retail, and hospitality.”
Economic and Environmental Impacts
The retail and hospitality sectors, in particular, have struggled with reduced footfall due to adverse weather conditions, compounded by a tough start to the year and the lingering effects of the pandemic. However, upcoming events like the Euros are expected to boost footfall and spending in these sectors, potentially offsetting some of the recent downturns.
The construction sector has also faced delays and disruptions due to the weather, exacerbating existing challenges from a slowdown in new projects. Businesses are also awaiting the Monetary Policy Committee’s decision on the Bank Rate of interest, which could influence their decisions on entering or delaying insolvency or restructuring processes.
Future Outlook
Looking ahead, Cooper anticipates a slight softening in liquidation numbers and increased interest in restructuring plans, especially following recent legal rulings that could make these plans more accessible to mid-market businesses. Despite the challenging economic climate, there is a sense of cautious optimism among businesses, with many expecting improvements in output and sales and planning to recruit additional staff.
Conclusion
The 6% fall in business insolvencies in May 2024 is a hopeful sign of recovery and resilience among businesses in England and Wales. While challenges remain, the reduction in insolvency figures, combined with positive economic growth in the first quarter and predictions of further growth, suggests that businesses may be turning a corner towards stability and future prosperity.
