Insolvency calm before budget storm hits​

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As the key Christmas and New Year spending season approaches its climax, the company insolvency figures for November 2024 released by the Insolvency Service may look rosier as first glance, but there are some troublesome dragons lurking in the details, ready to savage vulnerable businesses, warns Nick Hood, Senior Adviser at the Opus Business Advisory Group.   So where is business distress and failure heading, and how is it being influenced?

“Looking at the non-seasonally adjusted figures for the UK, there were 2,236 failures.  This was a rise of 13% on the previous month, but a 14% reduction compared to a year ago in November 2023.   Looking back to the calmer days before the effects of the pandemic and the Ukraine war moved so many commercial goalposts, November 2024 was a whopping 38% up compared to February 2020.”

“The monthly statistics have jumped around over the past year, making the rolling 12-month numbers a better guide to the overall trend.  The figure for October has fallen to 25,683, well down from the peak of 27,188 in July 2024 but still hugely higher than pre-pandemic when the rolling total was only 18,456 in February 2020.”

“An increase in creditor enforcement action is there for all to see, whether it’s for individual months or in the rolling 12-month totals.  Compulsory Liquidations through the courts initiated by creditors have been 15% of all insolvencies in the past year.  In November 2023, that statistic was 13%.  Looking at November alone, this trend is clearly accelerating.  Compulsory Liquidations were 18% of the insolvencies in November 2024.”

“At the same time, Creditors Voluntary Liquidations (CVLs) instigated by Company Directors or Shareholder are still falling, down from 80% for the year to November 2023 to 78% to November 2024.  This direction of travel is improving, with CVLs being only 75% of failures in November 2024 alone.”

“Pressures on the public finances is pushing HMRC to force more companies to the financial brink, and then over it, as tax collection processes become ever more assertive.  In addition, less turbulent economic conditions mean fewer Directors are throwing in the towel by pushing the CVL button.”

“But more difficult times surely lie ahead as the October Budget measures start to bite into profit margins and shred business viability from next April.  Unfortunately, the problems are more fundamental than just the impact of the tax, minimum wage and business rate hikes.”

“Our recent market reports on two of the sectors likely to be worst hit by the Budget, retail and hospitality have confirmed the fragility of the finances of businesses.  Our research shows that 44% of retailers (over 60,000) and 53% of hospitality companies (more than 45,000) are at significant risk of failure based on their latest published accounts.”

“With this level of financial risk even before the Budget cost increases hit, it’s difficult to see how the recent downward drift in insolvency filings can be maintained much longer.  As always, it will be smaller businesses, which will bear the brunt of any surge.”