We look at the latest trends and the kind of insolvencies we are experiencing, and outline what the future holds for CVAs and Restructuring Plans.
Corporate insolvencies have been at a near-record high since early 2023, matched only by the peak of the financial crisis in 2008/09. But the profile of insolvencies in these two periods has been very different.
By far the largest component of the recent prolonged spike in insolvencies is Creditors’ Voluntary Liquidations (CVLs). These tend to be used only for small companies. By contrast, Administrations – the preferred insolvency process for larger companies – have been much lower than in 2008/2009. At their peak, in October 2008, there were 1,122 administrations in a single month. But the highest monthly number of administrations during the recent spike was 184 in August 2023.
Insolvencies: The recent statistics
The latest monthly figures, from September this year, didn’t diverge much from these trends. They showed a slight increase in corporate insolvencies on aggregate (2% higher than August). This includes a small uptick in CVLs. However, looking at a quarterly rolling average, CVL rates are lower now than for most of the last 18 months. There were 1,575 in September, which is 6% lower than the monthly average of 1,677 for the last 18 months). This may indicate that the post-Covid ‘bonfire of the bounce back loans’ is finally beginning to subside.
Administrations also increased slightly compared to August: 155 companies went into administration in September, compared to 152 in July and 111 in August. But the run rate remains consistent with the trend of the last 18 months, with Administrations now essentially back to their pre-Covid levels.
Failures aren’t really hitting the economy
So the trend of high insolvency numbers continues to be driven by liquidations of small and micro entities, rather than the failure of larger companies. This means the macro-economic impact is small. Monthly redundancy statistics released by the ONS also support this analysis: they continue at low levels and remain below the pre-Covid rate.
The statistics throw up a few other noteworthy points. Compulsory liquidations (where a company is wound up by the court, following creditor action) fell by 15% in September compared to August, but the long-term trend seems to show a reversion to the pre-Covid average.
What does the future hold for CVAs and Restructuring Plans?
Company voluntary arrangements (CVAs), never very widely used even before Covid, were more or less predicted to die out when the Government reintroduced preferential creditor status for most HMRC liabilities in late 2020. Now it seems rumours of their demise were premature and CVAs continue to be used: 17 were approved in September – a 55% increase compared to last year. So it’s clear there is still a place for the CVA – a debtor-in-possession procedure unlike the other insolvency processes we’ve mentioned – in the right circumstances.
Restructuring Plans, another debtor-in-possession process, introduced by the Corporate Insolvency and Governance Act 2020, continue to see some take-up. They share some similarities with CVAs, but differ in that the court can overrule dissenting creditors. They’re complex and costly, and for this reason have mainly been used for large entities. Some members of the restructuring profession, however, argue the process could be used more widely – for smaller corporates and SMEs. Last year, 14 restructuring plans were approved (compared to only two in 2022). But only four have been approved so far this year, so there’s no sign that their use will become more widespread any time soon.
