Corporate Insolvency and Business Restructuring

Finance, Limited Company, Security,

Corporate insolvencies in England and Wales have reached their highest levels since 2009, a trend that reflects the economic challenges businesses have been facing for several years.

According to data from the Insolvency Service, Q3 of 2023 saw 6,208 companies registering as insolvent in these regions. While this figure represents a 2% decrease from the previous quarter, it marks a significant 10% increase compared to the same period in 2022. 

What’s caused the increase?

Key factors that have contributed to the rise include:

  • Escalating borrowing costs as interest rates have climbed. 
  • High inflation rates.
  • The ongoing effect of post-pandemic debt and upheaval. 

The number of creditors’ voluntary liquidations (CVLs) in particular surged to 4,965 between July and September 2023, reaching their highest levels since records began in 1960.

During the same period, there were 735 compulsory liquidations, 466 administrations, and 41 company voluntary arrangements (CVAs).

Breaking these statistics down, the construction industry suffered the highest number of new underlying company insolvencies, totalling 4,272. The wholesale and retail trade sector followed closely with 3,777 insolvencies, while accommodation and food services recorded 3,477 insolvencies.

On a more positive note, individual insolvencies dropped in Q3 2023, with 24,418 cases, representing a 6% decrease from the previous quarter and a 15% drop compared to the same period last year. 

Where can you get help for Corporate Insolvency?

Business owners who may be worried about insolvency need to consider the available options and get professional help quickly.

A misplaced sense of pride or shame can prevent business owners making the call that could make a world of difference to the outcome. Whilst it’s a really hard thing to admit that you’re heading into this position, it’s a conversation that we’ve sadly had many times over the years, so don’t delay!

Accountants are often the first point of contact for directors facing insolvency, or the prospect of it. A good advisor should be able to provide guidance around the best steps to take or introduce them to a licensed insolvency practitioner.

The right Insolvency Practitioner can be hugely helpful in assessing the company’s current situation and its future viability, especially if the business is already insolvent or on the brink of insolvency. They can look at your unique position and give you pragmatic advice around your remaining options. The longer you leave it to speak to them though, the less options there may be.

Some of the key questions to consider during this critical period include the following:

  • How much debt is owed?
  • How feasible is it that you can repay those amounts?
  • Who is money owed to?
  • What is the likelihood of your creditors negotiating repayment terms?

Additionally, it’s essential to work out whether the company is actually salvageable in the long term or if its financial troubles have pushed it beyond the point of rescue.

What restructuring options may help?

For businesses with the right answers to the above, and the potential for recovery, restructuring may be the most suitable approach. 

Option 1 – Company Voluntary Arrangement

This can involve entering into a formal repayment plan with creditors through a Company Voluntary Arrangement (CVA). A CVA is a legally binding agreement that obliges the indebted company to make regular contributions toward its existing debts, which are then distributed among creditors on a predetermined proportional basis. 

While a CVA can be an effective debt refinancing strategy, it requires creditor approval, which may be difficult to obtain if previous late or non-payment issues have strained existing relationships.

Option 2 – Administration

If creditors are unlikely to agree to a CVA, placing the company into administration is another option. During administration, the company is shielded from legal action from its creditors. This period provides directors with valuable time to assess their options and make decisions. It may allow unprofitable areas of a business to be identified and removed, allowing revenue-generating sections to trade out.

In some cases though, the financial pressures on a business can be too heavy requiring the company to be closed. 

The options for company closure are based around whether the company can pay its outstanding liabilities.

If the answer is yes, applying for strike-off directly with Companies House may be the easiest route.

This process involves submitting a DS01 form and is also known as dissolving a company. It can be used where total shareholders funds are below £25,000. If they exceed this level, you must follow the procedure for a formal liquidation, as below. Though there may be some options to reduce the shareholders funds, the tax implications of them may not be advantageous.

It’s crucial to note that if an insolvent company attempts strike-off, creditors are likely to object, halting the dissolution process.

If the answer is no, and the company cannot settle its liabilities, a formal liquidation process is the only route.

This process can be started voluntarily by the company’s directors or imposed through court orders. The liquidation ensures that any assets of the company are distributed fairly among creditors in accordance with legal requirements.

To summarise, the most important point is to take swift action in getting reliable professional advice as soon as you realise there’s an issue, or that there may be one coming. The right assistance can be crucial to tackling the financial issues in the business and working towards a more stable future.

If you’re concerned about your business, please don’t hesitate to get in touch. As mentioned previously, we’ve had this type of conversation with many business owners over many years, so it’s highly unlikely that we’ll be at all shocked with what you have to say, and we may well be able to quickly help you feel much better.

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