Company liquidation rate is set to remain high, warns Evelyn Partners
The current high level of company liquidations is likely to continue for the foreseeable future, according to a Bristol-based expert.
Figures released by the Insolvency Service today reveal that the number of the most common type of liquidation - creditors voluntary liquidation (CVL) – stands at 4,739 in the first quarter of 2023 across England and Wales. The figure for the same period last year was 4,274.
Nigel Fox, director, restructuring and recovery services at Evelyn Partners in Bristol, says that even in a benign economic climate there will be a certain number of businesses failures.
“Even when the economy is booming there will be a base level of insolvent liquidations that occur,” he says.
“This will be as a result, for example, of the business not being sound or that the company’s business model has come to a natural end. Bringing these companies to a close by way of an orderly wind up, or liquidation, is a necessary part of the corporate cycle and it is healthy for this to occur so that in effect, the dead wood is cleared out.
“Unfortunately, it’s clear that the current level of insolvent liquidations is much higher than a base level.
“How long this high number of companies entering into a CVL will continue is unclear, but it seems likely that it will continue at this level for a while, given the current environment of high inflation, interest rates and energy costs.
“It is however important to note that some of the companies now in liquidation may have been able to avoid entering such a process if the directors had sought advice at an earlier stage, as usually the earlier that advice is sought then the more options that will be available.”
In 2022 one in 202 active companies entered insolvent liquidation, which was a total of 18,873. This equates to a rate of 49.5 per 10,000 active companies. This was an increase from the rate of 32.9 that entered liquidation in 2021 and was higher than the rate of 41.9 in 2019, before the COVID-19 pandemic.
The liquidation rate in 2022 was the highest insolvent liquidation rate since the third quarter of 2015 - but was lower than the recessionary peak rate of 94.7 in 2009.
