Rise in Number of Companies Going Bust, Insolvency Service Reports

The number of companies in England and Wales entering insolvency last month increased by 16% compared to the same period last year, according to official data from the Insolvency Service.

The figures revealed that 2,191 firms became insolvent in July, reflecting the lingering impact of high inflation and elevated borrowing costs on businesses, even as broader economic indicators hint at improving prospects for the UK. Although the figure marks a 7% decrease from June, insolvency levels remain significantly higher than those observed during the COVID-19 pandemic and the aftermath of the 2008/09 financial crisis.

Rebecca Dacre, a partner at advisory firm Forvis Mazars, described the data as "a stark reminder that many businesses are still far from recovery." She noted that, despite some positive signs in the economy, certain sectors continue to face substantial challenges due to sustained high interest rates.

“Falling consumer spending amid the cost of living crisis has made survival difficult for many businesses, especially in the retail and hospitality sectors. Without a more robust economic recovery, we are likely to see more companies driven towards insolvency,” she said.

Sarah Rayment, head of global restructuring at finance firm Kroll, offered a more optimistic view, urging caution rather than alarm. "Looking at the bigger picture, there are reasons to be optimistic," she said. However, she added that positive economic trends do not immediately benefit all businesses, particularly those grappling with high borrowing costs and refinancing pressures in the coming months.

“The key concern is whether companies will have sufficient financial flexibility to manage higher borrowing costs or if lenders will grant them the necessary leeway. More restructuring activity seems likely in the near term,” Rayment concluded.

The Insolvency Service’s seasonally adjusted data, compiled with Companies House, also showed 320 compulsory liquidations, the highest monthly figure since before the pandemic.

In addition, personal insolvencies increased by 24% compared to July last year, according to separate official data released on Tuesday. A total of 10,524 individual insolvencies were recorded, a figure in line with that of June. This includes 634 bankruptcies, 4,163 debt relief orders, and 5,727 individual voluntary arrangements. Nonetheless, individual insolvency levels remain below those seen during the pandemic.

The report highlights the ongoing struggles of businesses and individuals alike, with the challenging economic environment continuing to exert pressure despite tentative signs of recovery.

^{Photo by Miguel Montejano}