Exploring the Rise in UK Business Insolvencies

There’s no doubt that the United Kingdom is facing a difficult time of economic hardship. Since the outbreak of the global pandemic in early 2020, the UK economy has suffered through national lockdowns, ever-changing and often unclear Coronavirus rules and regulations, and a serious economic recession.

It should come as no surprise then, that the unfriendly economic climate resulting primarily from the pandemic has also resulted in a rise in UK business insolvencies. The UK’s Insolvency Service reports that within the last 12 months, business insolvencies across the UK have increased by more than 50 per cent, and unfortunately things aren’t looking much better for the foreseeable future.

If you’re worried about your business, then keep reading, as our expert team explores the reasons behind this rise in business insolvencies across the United Kingdom.

Latest Reports Show a Rise in Insolvencies Across the United Kingdom

The United Kingdom’s Insolvency Service releases monthly statistics and reports that show exactly how many businesses have filed for insolvency. The latest monthly figures were released in October 2021, while detailed quarterly and annual reports also allow analysts to take a deeper look at overall trends since the start of the year.

The latest figures show a rise in business insolvencies in October 2021, as opposed to a year earlier, in October 2020. The Q3 report, detailing figures collated from July through to September 2021, also showed a large increase in business insolvencies from previous months.

Likewise, the Q2 report detailing figures on business insolvencies between April and June 2021 also showed an increase on the figures from Q1. This demonstrated an inexorable rise in business insolvencies month on month throughout the year. The Q2 report in 2021 then showed a rise in business insolvencies compared to the Q2 report in 2020.

Due to the existence of government support schemes and a moratorium on compulsory liquidation, it’s intriguing to note that the number of business insolvencies in Q1 was lower than in the same quarter in 2020. This however is an anomaly, and the general trend in 2021 has since been an increase in business insolvencies compared to the previous year.

Business insolvencies have now picked up pace in the last few months, with significant increases compared to the first two quarters of the year. Let’s take a look at the latest figures to see exactly how business insolvencies have risen in recent months.

July 2021

In July 2021, the Insolvency Service reported that 1,094 companies registered themselves as insolvent. The report noted that this was 13% higher than in July 2020 when 965 business insolvencies were registered.

However, the report also notes that the number of insolvencies in July 2021 was actually considerably lower than in July 2019, pre-pandemic. In July 2019, there were 1,442 business insolvencies, meaning that this year’s total for July was 24% less than in the same month two years prior.

August 2021

In August 2021, business insolvencies increased compared to the month before. The Insolvency Service reported that the total number of registered business insolvencies this month was 1,348, which is higher than in July 2021.

This figure is 71% higher than in August 2020, when only 788 business insolvencies were registered. August 2021 also saw the figures on par with pre-pandemic levels, as in August 2019 there were 1,366 business insolvencies registered with the Insolvency Service.

September 2021

The Insolvency Service reported a total of 1,446 business insolvencies in September 2021, another rise from the previous month. This was also a large increase from September 2020, when 928 business insolvencies were registered.

September 2021’s figures were 56% higher than in September 2020, and in keeping with the general trend as business insolvency figures have risen towards the end of this year. Compared to pre-pandemic levels in September 2019, when 1,510 business insolvencies were registered, September 2021 was again on a par.

October 2021

October 2021 saw a negligible dip compared to the month prior, with 1,405 business insolvencies registered with the Insolvency Service. This was 63% higher than in October 2020, when there were only 864 business insolvencies registered.

Compared to pre-pandemic levels, the figures for October 2021 were again similar to October 2019, when there were 1,480 business insolvencies registered. October 2021, in keeping with the general trend though, demonstrated that insolvencies were again returning to normal levels.

What’s Counted as Business Insolvency?

You might be wondering how the Insolvency Service collects its data on business insolvencies and, more importantly, what they count as business insolvency for the purpose of their statistics.

Insolvency occurs when a business can no longer pay its debts, as and when they might arise. This might mean that the business is no longer profitable, that income streams have dried up, or that expenditure outweighs incoming money.

Regardless of the reason for insolvency, it should be noted that an insolvent company wouldn’t necessarily be included in the figures. Rather, the Insolvency Service only counts ‘registered company insolvencies’. These are businesses that have registered some form of insolvency action through the Insolvency Service.

For the purpose of the statistics, registered company insolvencies include any business undertaking the following:

  • Creditors voluntary liquidation (CVL)
  • Compulsory liquidation
  • Administration
  • Administrative receivership
  • Company voluntary arrangements (CVA)

It’s possible that other businesses may technically be insolvent, but have come to personal agreements with creditors or negotiated loans and credit agreements without involving the Insolvency Service. In this case, it’s likely that the actual figures for the number of businesses facing insolvency could be much higher.

Why Were Business Insolvencies Lower at the Start of 2021?

Overall, commentators have suggested that business insolvencies in the UK have increased by more than half in the last 12 months. Considering that the world has been in the grip of a global pandemic for almost two years, these figures should be somewhat expected.

However, the massive increase in business insolvencies has only picked up pace in the last two quarters of 2021. It should be noted that while overall figures for the year have shown that business insolvencies are undoubtedly on the rise, they were much lower in the first few months of 2021.

In fact, the number of business insolvencies in January 2021 was significantly lower than in January 2020. This might sound surprising given that we’ve been in the middle of a global pandemic, but the reality is that many companies have been propped up by the multitude of government support schemes that were designed to combat insolvency.

Government support included the likes of the furlough scheme and government-backed loans which assisted businesses affected by lockdowns and by a downturn in trade resulting from the pandemic. This ensured that many businesses survived in the short term, but as this government assistance has slowly been phased out, not all businesses have managed to regain their prior profitability.

Importantly, the Insolvency Service also notes that one of the major factors that stopped companies from becoming officially insolvent was a moratorium on ‘the use of statutory demands and certain winding-up petitions (leading to company compulsory liquidations)’.

These temporary restrictions ensured that creditors couldn’t force companies that owed them money into compulsory liquidation as a way to recoup their debt. This moratorium meant that for much of 2020, the figures registered by the Insolvency Service were composed mostly of voluntary liquidations, rather than compulsory. Along with government support schemes offering financial assistance to businesses, this resulted in low business insolvency levels for the first two quarters of the year.

Why Are So Many More UK Businesses Becoming Insolvent Now?

Despite the low business insolvency figures at the start of the year, there’s no doubt that businesses are now facing tougher times.

As the pandemic seemed to be burning out – despite new strains emerging across the world – the government began to end many of its covid support measures. While some businesses were undoubtedly saved by the financial assistance and moratorium on winding-up petitions, many were simply bought extra time before the inevitable.

In September 2021, the furlough scheme came to an end. This also coincided with the end of temporary insolvency restrictions, although certain businesses are still protected against compulsory liquidation until March 2022.

Commentators are suggesting that many business directors who were clinging on throughout the pandemic are now throwing in the towel as they lose government support. This has resulted in a large increase in business insolvencies in the UK in the last quarter of 2021 compared to previous quarters.

The rise in business insolvencies is not just down to the ending of government assistance, though. This is a major factor, but for many directors there are other mitigating factors too, such as the lingering effects and unpredictability of Brexit, changing customer demands, increased competition, higher costs, and more. Certain industries, such as hospitality, tourism, and businesses with a physical retail presence on the high street have suffered more than others, and in many cases directors are deciding that future prospects are bleak.

Why Are Figures not Higher than Pre-Pandemic?

Business insolvencies are now on the rise when compared to 2020 and earlier quarters this year when government support was more readily available. However, you may also have noticed that business insolvency levels are only just beginning to catch up with the levels that were seen pre-pandemic.

August and September 2021 had a similar number of business insolvencies to the same months in 2019, which was before the global pandemic struck in early 2020. The number of business insolvencies in October 2021 was, according to the Insolvency Service, 5% lower than in October 2019.

The current insolvency rates are essentially now on a par with pre-pandemic levels. However, while some commentators might see this as a return to normality, that’s far from the truth. The current numbers are still very much an under-reflection of the true state of business insolvencies in the UK. In August and September this year, furlough schemes and temporary insolvency measures were still in place. These schemes began to end in October, but of course it takes time for the effects to be seen.

The Insolvency Service notes that compulsory liquidations have remained very much lower throughout 2021 than in pre-pandemic years, and this is purely a result of the government’s ban on winding-up petitions. Voluntary liquidations however have been much higher in the past few months than in pre-pandemic years.

This means that while business insolvency levels are now on a par with pre-pandemic figures, this isn’t really an accurate representation, as many companies have been protected against compulsory liquidations. The stark reality is that even as business insolvency cases rise towards the end of 2021, the true figure would be much higher if no protections existed.

What Is the Forecast for the Future?

Business insolvencies in the UK are likely to see a continual rise into the next year, as government support continues to be phased out and directors battle against increased competition in an ever-changing economy.

Insolvency cases are currently the same as they were pre-pandemic. Considering there are still measures in place protecting some companies and businesses from winding-up petitions, we are likely to see another rise in compulsory liquidations in the middle of 2022 when these restrictions are scheduled to end.

While the outlook might seem bleak, business directors should remember that there are always ways to avoid insolvency and liquidation. An experienced insolvency practitioner can recommend a range of tools, such as voluntary arrangements or corporate reconstruction plans, which ensure your business survives and, in the future, thrives.

Is your business facing insolvency? Contact Irwin Insolvency today to find out how we can help.

There’s no doubt that the UK is experiencing a time of unique economic difficulties, resulting in an unprecedented rise in business insolvencies over the last 12 months. If your business is facing financial troubles, then the expert advice of an insolvency practitioner can help your company to turn things around.

Irwin Insolvency’s experienced team of insolvency experts is here to help. We specialise in providing financial advice and recovery plans that can save your business from insolvency. Contact Irwin Insolvency today for your free consultation.

Contact Irwin Insolvency today for your free consultation

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About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency, rescue and turnaround.