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Dev-Bank Wales MBO
20 June 2024

Insolvency Statistics – What They Mean for Your Business’ Finances


GUEST COLUMN:

Tim Sloggett
Wales Chair
R3, Insolvency body

Since November 2023 corporate insolvency rates have shown positive signs that the rate of insolvencies since the pandemic may be tailing off and starting to reduce.

There have also been positive signs in the economy with the official end of the recession, inflation coming under control and a general increase in business confidence.

However, in previous recessions there has been a lag with insolvencies rising after a recession. There are still high levels of debt in businesses following the pandemic and this, together with continuing higher interest rates and a relatively weak growth in demand, is likely to result in a bumpy road ahead in 2024 as evidenced by the recent uptick in insolvencies.

Whilst all types of insolvency have increased, there has been a bigger increase in administrations of larger companies, with some high-profile administrations such as the Body Shop, Ted Baker and Cazoo. Since the pandemic, Creditors’ Voluntary Liquidations of smaller companies has been the main driver of insolvencies, and this may be a sign that pressure is now starting to hit larger companies.

In terms of sectors with the highest rates of insolvency, the construction sector had the highest number of insolvencies at 17% of the total, with wholesale and retail second at 16% and then accommodation and food services at 15%, mainly relating to restaurants and pubs. This is not surprising given that the construction sector has been particularly impacted by a decline in commercial developments and continuing labour shortages following Brexit, and consumer driven sectors are impacted by the continued squeeze on disposable incomes.

In this environment it is vital that businesses prepare robust short term and longer-term forecasts that are continually reviewed and updated with downside risks assessed. A common theme we are seeing is companies making positive strategic changes to improve profitability, but with the costs to implement these changes and the downside risks being underestimated. With prudent planning and careful monitoring, potential challenges can be identified earlier so that expert advisors can be engaged to avoid the worst-case scenario materialising if advice is sought too late.

Turning to personal insolvencies, so far in 2024 the statistics indicate that the declining trend seen in 2023 may now be reversing.

Debt relief orders are available for individuals who owe less than £30,000 and have assets less than £3,000.  The increase indicates that cost-of-living crisis is taking a toll on people’s finances, particularly those with lower incomes and less personal wealth. Prices are continuing to rise despite the fall in inflation, and we are seeing reports of people turning to credit to bridge the gaps in their finances.

While the macro-economic data  seems to be more positive for businesses and individuals, and consumers seem more optimistic about the weeks and months ahead, the recent insolvency data is showing a different picture and people in Wales still need to keep a close eye on their personal and business finances, seeking advice as soon as they become concerned that they are having or could have problems in the near future.

Most R3 members in Wales will provide a free consultation to potential clients to learn more about their situation and outline the potential options that could be open to them for improving it.



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