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Insolvencies rebound in April, Opus comments

Uncertain commercial conditions and a sluggish low-growth, no-growth economy, drove business failures to unusually high levels in 2022 and then again to an all-time high of well over 26,000 in 2023.  This year continued that trend, until out of the blue there was an abrupt about turn with a 24% drop year-on-year in March 2024.  This looked very much like a blip and sure enough, April has seen a quick return to growth in insolvencies, in fact a whopping one third rise compared to April 2023.  So we asked Nick Hood, Senior Business Adviser at the Opus Business Advisory Group to sort out what is going on.

“Looking first at the pure numbers, April insolvencies were 35% up in April 2023 and 58% on April 2019 pre-pandemic figures.  On a 12-month comparison, 2023/4 is now 13% higher than 2022/23 and 46% on 2019/20.”

“The most obvious features of insolvency filings in recent years have been the explosion in Creditors’ Voluntary Liquidations (CVLs) since the end of the pandemic, and a sharp fall in business rescues through the Administration route stretching back as far as 2009.  This suggests that many entrepreneurs have concluded that their businesses were simply too badly damaged to contemplate trying to rescue them.”

“At the same time, debt enforcement through the courts via Compulsory Liquidation (CWU) has also fallen dramatically since pre-pandemic in 2019/20, with creditor actions recovering only slowly from the restrictions imposed by the government from 2020 to 2022 to protect vulnerable businesses.”

“Administrations are starting to rise slightly, while the latest figures from the Insolvency Service suggest that CVLs may at last be tapering down.  CVLs are down to 79% of all insolvencies in the 12 months to April 2024 by comparison with 82% in the same period in 2022/23.  Over the same time spans, CWUs have increased from 11% in 2022/23 to 13% now.  Before the pandemic, CWUs accounted for 20% of insolvencies.”

“This is not necessarily bad news for the business community, because historically, insolvency peaks have marked the end of recessions and the start of recoveries. The big question is: when will we peak this time?  Even Nostradamus might struggle to come up with an answer to that conundrum, but the most recent economic indicators are mainly positive, with GDP growth up to 0.6% in Q1 2024 and CPI inflation down to 2.3% in April. Can this progress be sustained?”

“Another tough question, but with the slight ‘stickiness’ of April’s inflation numbers likely to delay much-needed interest rate cuts and with the hiatus in economic policy making during the snap summer election campaign, the betting must be on insolvencies continuing to rise for a few months yet.”

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