Opinion: Insolvency figures show businesses are still facing challenging times as costs remain high

The latest insolvency statistics for May 2024 show corporate insolvencies decreased by 6.4% in May 2024 to a total of 2,006 compared to April's total of 2,144, and decreased by 21.2% compared to May 2023's figure of 2,547.

Personal insolvencies decreased by 3.5% in May 2024 to a total of 9,266 compared to April's total of 9,605, and increased by 2.9% compared to May 2023's figure of 9,003.

Here Fran Henshaw analyses what those figures mean for North West businesses.

The month-on-month fall in corporate insolvencies is driven by lower numbers of Administrations, Compulsory Liquidations and Creditors’ Voluntary Liquidations (CVLs), while the reduction in numbers we’ve seen compared to May 2023 is mainly driven by a fall in Administrations and CVLs. However, levels of corporate insolvency are still higher this month than they were in May 2019, and this is because CVL levels are higher – significantly higher – now than they were then, as a greater number of directors are closing their businesses after four tough years of trading during and post-pandemic.

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The business climate remains challenging due to a variety of short and long-term issues. Inflation levels, cautious consumer spending, and the costs of energy and fuel have been affecting businesses for months, while shorter-term issues like the rain we experienced in April and May will have hit firms in the construction, retail and hospitality sectors.

Retail and hospitality will have seen a lower footfall as a result of the wet weather over the last couple of months, and this will have been another blow after a tough start to the year, a poor Christmas trading period and the longer-term impact of people spending less. However, these industries will be hopeful the Euros will bring an increase in footfall and spending in England and Scotland, which may help make up for a slow start to the year.

The rain will have also caused delays and disruption to construction projects, which will create additional issues for a sector that had seen a reduction in new work at the end of last year and the start of this one.

Another factor affecting businesses is the anticipated Bank of England’s Monetary Policy Committee decision on the Bank Rate of interest. The Committee’s decision is also likely to affect businesses in the future, given the impact it has on a range of areas of commercial and international finance. It may result in firms choosing to enter or choosing to delay entering an insolvency or restructuring process depending on the timings of their current arrangements.

When it comes to trends in insolvency and restructuring over the next couple of months, I would expect the liquidation numbers to soften slightly, and mid-market businesses to look towards exploring their options for Restructuring Plans as the recent ruling on Tasty plc’s proposals will potentially open up the market for this process to firms of this size, but with low market expectation of an interest rate cut before the August Monetary Policy Committee sitting at the earliest, it could be a slow summer for restructurings.

Despite the challenges businesses face and the uncertain political and economic climate, they are generally more optimistic about the coming months, and many expect output and sales levels to rise and are planning to recruit extra staff. With the economy growing in the first quarter of this year and predicted to grow again in the next quarter, the tide may be about to turn for the better.

Turning to personal insolvencies, the month-on-month fall in numbers is due to fewer people entering a Bankruptcy and Individual Voluntary Arrangement (IVA) last month, while the annual increase in personal insolvency numbers is due to a rise in Debt Relief Orders after the entry fee for this process was removed in April of this year. Personal insolvency numbers are lower than they were in April 2019, and this is due to fall in Bankruptcies and IVAs.

The number of people entering a Breathing Space has also increased slightly compared to last month, and it’s clear that there is still ongoing demand for debt support in England and Wales, but that people are increasingly entering processes like DROs that allow them to come to an arrangement with their creditors, or like the Breathing Space, which allows them a respite from creditor pressure while they attempt to find a solution to their financial issues.

It’s also clear the cost of living is continuing to hit consumers. Paying for the essentials remains a challenge as food, fuel and energy prices continue to rise, and while inflation is coming down and the energy price cap is set to fall from July, costs still remain high for households, with energy prices well above what they were three years ago. As a result, people are still looking to save money – either to meet ongoing costs or to spend later on in the year.

I urge anyone in the North West who is worried about their finances to seek advice as soon as possible. We know how challenging it is to talk about your money worries, but taking that step and starting that conversation when the problem is new will give you more options for resolving it and more time to consider your next step. Most North West R3 members will give potential clients a free consultation so they can learn more about their situation and explain which options are potentially available to resolve it.

• Fran Henshaw is North West Chair of R3, the UK’s insolvency and restructuring trade body, and h ead of corporate recovery and insolvency at Beever and Struthers