The number of registered company insolvencies in Q3 2023 fell 2% on the previous quarter, according to figures released by the Insolvency Service, but experts warn that this small decrease is on a knife edge and could go either way in the next coming months.

The figures show that between 1 July and 30 September 2023, there were 6,208 company insolvencies, made up of 4,965 creditors’ voluntary liquidations (CVLs), 735 compulsory liquidations, 466 administrations, 41 company voluntary arrangements (CVAs) and one receivership appointment. The number of insolvencies in Q3 2023 was 10% higher than Q3 2022.

Commenting on the latest figures, ICAEW Economies Director Suren Thiru, says: “Despite this decline, insolvencies remain close to levels seen in the aftermath of the global financial crisis and are only slightly down from the previous quarter’s 14-year high.

“ICAEW’s own Business Confidence Monitor (BCM) suggests that business conditions are deteriorating as the squeeze from weakening customer demand and higher interest rates more than offsets a boost from easing inflation.

“With our forward-looking measures of domestic activity, employment and investment intentions also disappointingly downbeat, company insolvencies could well start rising in subsequent quarters.”

Gareth Harris, partner at RSM UK Restructuring Advisory, says: “A small drop in insolvencies is a step in the right direction, with the majority of the fall from lower levels of ‘shut down’ creditors’ voluntary liquidations at the smaller end where the catch-up from COVID-19 and government support has been flushed out.

“Sticky inflation, high interest rates and the cost of living are still making it tough for businesses to recover post-COVID, but we are entering a new phase. As business confidence recovers, we are already seeing an increase in corporate rescues and businesses bought from administration. High debt levels are really starting to bite but there is increased appetite to invest and save those businesses that ought to have a future.”

Chartered accountants on the front line

The year-on-year rise in insolvencies has significant implications for chartered accountants, as increased demand for expertise in restructuring, financial planning, and advisory services propels them to the forefront of guiding struggling businesses through these turbulent times.

As the number of insolvencies rises to levels reminiscent of pre-COVID times, chartered accountants are expected to play a pivotal role in providing essential financial guidance, offering insights into recovery strategies, and ensuring compliance with complex regulatory frameworks. Their role becomes increasingly vital in assisting businesses in navigating these challenging financial circumstances, indicating a crucial period for the profession’s expertise and support in the business ecosystem.

Creditor patience wearing thin

“The flip side of this is that while creditors have been supportive of businesses as they recover post-pandemic, this patience has now run out and the stance on forbearance has hardened, leading to an increase in compulsory liquidations, which points to the need to engage with all stakeholders to find a solution,” adds Harris. “While this is a small fall in overall insolvency numbers, we expect insolvencies to return to more normal long-term levels over the next few years.”

Sara Stoker, Director in PwC’s Restructuring and Insolvency practice, points out that the top four most impacted sectors in Q3 2023 were business services, construction, hospitality and retail. “Our analysis shows there was a 26% increase in insolvencies in the hospitality and leisure sector (1,165 in Q3 2023 vs 921 in Q3 2022).

“Although the upcoming festive season may provide some welcome respite for this sector, the combination of staff and stock costs, supply chain demands, as well as high rents and interest rates, will make for a challenging final quarter. Overall, therefore, we do not expect the picture to change dramatically in Q4, with a high number of insolvencies unfortunately likely.”

Construction was also recorded as the least confident sector in ICAEW’s Q3 BCM as higher interest rates and weakening sales growth has lowered optimism in the sector.

A deep dive into the UK economy

Business confidence as a whole across the UK remaining in positive territory but dipped marginally from Q2’s position. The decrease in confidence reported by the index, from 6.1 (Q2) to 2.9 in Q3, was due to economic challenges as bank charges and weather woes weigh heavy on UK businesses.

ICAEW launched its Resilience and Renewal campaign in September, exploring the most serious systemic challenges facing the UK economy. It brings together government ministers, leading academics and economists to look at how to build a better, more resilient future economy and the vital role of chartered accountants.