Insolvency Update – Autumn 2022
The current position
The Insolvency Service has published its October statistics showing that corporate insolvencies – which reduced significantly during the Covid-19 pandemic – are increasing.
October 2022’s figure of 1,948 corporate insolvencies (comprising administrations, liquidations, company voluntary arrangements and receiverships) is 38% higher than the number in October 2021 and 32% higher than in October 2019. It is also 15.7% higher than September 2022’s figure of 1,684.
This is driven by an increase in the number of liquidations, particularly compulsory liquidations where a company is wound up by the court, usually on the petition of a creditor. HMRC has been particularly active in this area in recent months (such petitions having been severely restricted during the pandemic), and one particular bank was responsible for almost 20% of the compulsory liquidations in October 2022 having been the petitioning creditor in 45 cases out of 242.
By contrast, administrations and company voluntary arrangements remain lower than prior to the pandemic. The new procedures created by the Corporate Insolvency and Governance Act 2020 remain relatively rare but are now starting to gain traction: between 26 June 2020 and 31 October 2022 40 moratoriums were obtained and 12 companies had a restructuring plan registered at Companies House (there were only four moratoriums and two restructuring plans approved to 31 December 2020).
What’s behind the numbers?
Nicky Fisher, Vice President of R3, the insolvency and restructuring trade body, said in R3’s response to the statistics that:
“A series of economic issues, the end of temporary insolvency legislation, and a lack of a post-COVID bounce have hit all parts of the economy and the supply chain hard and have resulted in more directors choosing to close their businesses and more creditors calling in debts as a means of balancing their own books. On top of this, business owners are worried about the prospect of an imminent and prolonged recession and where they’ll find the money to meet employees’ requests for increased pay as running costs increase and profits disappear.”
Who have the casualties been?
Two insolvencies in the news this month are the administrations of Made.com and Joules – very different retail businesses which both find themselves in insolvency procedures.
The furniture retail website Made.com is a high-profile casualty of the apparent bursting of the pandemic online retail bubble. Hailed as the future of furniture retail, only last year Made.com floated on the London stock market (having never made a profit) at a valuation of £775m on the basis that the pandemic-related switch to online shopping marked a permanent shift.
This trend however started to reverse as pandemic restrictions lifted, resulting in a dramatic drop in demand at the same time as the company spent significant sums increasing its stock levels. The company went into administration on 8 November 2022 owing £186.6 million to unsecured creditors, including £17.1 million to customers. Next has acquired Made.com’s brand and websites, but around 300 employees are reported to have lost their jobs and the administrators anticipate that creditors will receive only 1.6p in the pound.
The established fashion retailer Joules, launched in 1989, also went into administration on 16 November 2022, putting more than 1,600 jobs at risk, after it failed to secure new investment against a background of months of falling sales. Factors such as the cost of living crisis and the summer heatwave, which reduced demand for products such as wellies and waterproofs, are blamed in part. The company’s brand has drawn several strong expressions of interest from potential buyers (including, reportedly, Next).
Conclusion
It is clear that there are multiple and interlocking factors weighing on directors and business owners at the moment as they prepare to enter the traditionally lucrative Christmas trading period. With the ONS reporting that retail sales fell by 2.4% in the three months to October 2022 – the worst quarterly sales performance since March 2021 with volumes in September and October falling below pre-pandemic levels for the first time – we suspect that some struggling businesses will be making difficult decisions in January 2023 if sales are disappointing.
As ever, we would recommend that any businesses experiencing problems with cash flow or with concerns about their future trading should seek advice as soon as possible, as the earlier that advice is sought the more options are likely to be available. If you are concerned about your company’s finances, please do not hesitate to contact one of the insolvency specialists in our Commercial Dispute Resolution team.