Restructuring Insights Q2 2024

CVLs dominate insolvency landscape despite 4% decline

Creditors' Voluntary Liquidations (CVLs) continue to dominate, with more than 80% falling into this insolvency category (albeit with a slight drop of c.4% on Q2 2023). This remains the most common insolvency process year on year, likely due to its cost, speed and flexibility. 

This slight 4% decline is likely influenced by the prevailing economic and political climate, notably shaped by the recent change in government and impact of the European football championship, potentially leading businesses to delay insolvency proceedings in anticipation of a boost in consumer spending. Additionally, the early onset of summer holidays may have prompted some companies to defer critical decisions regarding their future operations.

Small businesses remain most vulnerable

The distribution of insolvency appointments by revenue class has not deviated from previous trends, with 98% of insolvency appointments occurring within the lower market segment, in businesses with annual revenues below £1 million.

Smaller businesses continue to be the most vulnerable to insolvency, as they often have less capital and fewer financial reserves than larger companies. This can lead to longer periods of reduced cash flow or unexpected financial setbacks.This limited buffer can lead to insolvency if the business faces sustained challenges.  

Key sectors and regional trends

The retail, hospitality, business services and construction sectors account for 69% of all insolvencies. These areas continue to face pressures from the high costs of energy, raw materials and labour to changes in consumer sentiment and stricter regulations.

Regionally, the number of company insolvencies have remained relatively consistent YoY, with the exception of Northern Ireland - where insolvencies have more than doubled in Q2 2024 compared to the same period last year.

Industry focus - Higher Education

We expect to see increasing pressure on Higher Education institutions over the coming months. Many will be facing a funding crisis driven by high inflation, frozen fees for domestic students and falling student numbers (particularly among overseas students who pay higher fees). This leaves many universities set to operate at a loss. It will likely be a focus for the new Government as these challenges continue to impact the sector.  

Restructuring focus

The landscape of insolvency and restructuring is evolving, with businesses increasingly seeking alternative strategies to avoid insolvency. This shift is indicative of a broader trend towards proactive financial management, and the preservation of value for stakeholders with the rise in restructuring plans being emblematic of these changes.

Looking ahead

The new government will bring a new set of economic policies and priorities that will shape the business environment. The shift in policy is particularly focussed on stability, support for SMEs, and substantial infrastructure investment. These changes are expected to create a more supportive environment for businesses and should reduce the number of insolvencies looking forward.

However, a lag of 18-24 months can be observed between changes in macroeconomic conditions and the impact on corporate insolvencies and therefore despite corporate insolvencies reaching a three-decade high number in 2023, the peak may be yet to come.