Insolvencies at highest levels since 2009 — but which sectors are the worst hit?
The number of firms going bust has risen to its highest level since 2009 — at the height of the financial crisis, according to the latest data from the UK Insolvency Service on Tuesday.
The number of company insolvencies in the third quarter of 2023 was 10 per cent higher than the same quarter of the previous year, while the number of creditors’ voluntary liquidations were the highest since 1960, when the data series started.
Mark Ford, a partner in restructuring and recovery services at Evelyn Partners, explained that the recent spike in insolvencies mainly came from company voluntary liquidations, suggesting that business directors are taking the decision to liquidate their companies.
“It would appear that they are concluding that the game is up with the combination of legacy debt from the COVID pandemic and facing very strong financial headwinds and global uncertainty,” Ford said.
According to the latest Red Flag Alert report from business recovery firm Begbies Traynor on Tuesday, the number of companies in ‘critical’ financial distress has leapt by nearly 25 per cent since the second quarter of 2023.
The third quarter of the year saw 37,722 UK companies in critical financial distress, Begbies reported, while almost 480,000 were in ‘significant’ financial distress.
“Tens of thousands of British companies are now in financial dire straits now that the era of cheap money is firmly behind us,” said Julie Palmer, partner at Begbies.
“Businesses that had loaded up on debt at rock-bottom rates, and were only able to cling on during the pandemic thanks to Government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future. Taken together with stubbornly high inflation and weak consumer confidence, many of these businesses will inevitably head towards failure.”
The sectors worst hit by insolvencies
The UK bank rate is currently at its highest level since December 2021 following 14 consecutive rate rises from the Bank of England. The new world of elevated interest rates has pushed many businesses to the brink but the Red Flag report noted that construction and real estate companies have especially suffered as the slowdown in the housing market continues to bite.
According to Begbies, construction and real estate and property services companies now account for almost 30 per cent of all companies in critical financial distress.
“The construction industry, which has long been a bellwether for the health of the economy, looks particularly vulnerable with over 70,000 firms now in significant financial distress and circa 6,000 in much more serious critical financial distress – often a precursor to formal insolvency,” Palmer said.
“These businesses must now struggle through a period of inflation-eroded margins, weak demand and a looming recession. It is likely to be an insurmountable task for many.”