Surge in UK Company Insolvencies

According to market participants, a combination of economic circumstances, pandemic aftereffects, and widespread carelessness among company directors has resulted in a large increase in the number of UK insolvencies. This could potentially lead to a heap of claims against company directors for failing to protect the interest of the company and its creditors. According to recent Insolvency Service data, the annual number of company insolvencies in England and Wales increased by 21% in November. In November, 2,029 companies were declared insolvent, the second-highest monthly total in three years.

The Insolvency Service, the government organisation that released the data, claimed that the surge in winding-up petitions from tax authorities and the 95 compulsory liquidations requested by a single, unnamed bank were two factors contributing to November’s spike.

Individual Voluntary Arrangements (IVAs), the most popular agreement with unpaid creditors for people, increased 11% from the three months ending in November 2021 and 14% from before the epidemic.

Need a second opinion on your insolvency litigation? Our specialist solicitors & barristers can help by assessing your case prospects and whether a winding-up petition is the right tool. We have highly experienced dual-qualified lawyers, so if our view is your case has limited merit or high risk we can advise you of the best strategy in our first meeting.

What Should the Business Owners Do?

Business owners should not be oblivious, and wait until there is a liquidity problem, instead they should seek for advice. Counsel and support at an early stage will have a broader range of options and a far higher chance of avoiding insolvency. Liquidations will continue to rise, but businesses can be saved if they seek good restructuring guidance.

Companies under Financial Pressure

As the apparent effects of inflation, interest rates, input costs, and Brexit continue to pound, the number of companies suffering financial difficulty has increased. The insolvency spike to the number of businesses in financial distress can be attributed to higher Creditors’ Voluntary Liquidations and compulsory liquidations.

Energy costs, salary demands, and loan rates are all continuing to rise, putting pressure on businesses. Most directors have never experienced this amount of inflation before, so they are being forced to alter their methods of operation in order to exercise more control. Businesses in retail, hospitality, and construction were particularly pressured.

In a half-yearly report released on Tuesday, the Bank of England stated that while British businesses appeared resilient following greater earnings this year, 2023 appeared to be more challenging, particularly for smaller enterprises that are more sensitive to increasing borrowing costs.

Revocation of Debtor Friendly Measures

The dismantling of the UK government’s interim “debtor friendly” measures has been a significant bankruptcy trigger in addition to the economic situation. In response to the pandemic, the provisions were introduced under the Corporate Insolvency and Governance Act, and they went into effect in June 2020. They comprised:

• A suspension of serving statutory demands.
• Limitations on winding-up applications where the pandemic was the source of overdue debt.
• Removing the possibility of directors being held personally liable for improper trading.

Because of this, it is not surprising that the number of compulsory liquidations increased five-fold between November 2021 and November 2022. The picture at the moment is not very promising, and UK insolvencies, particularly compulsory liquidations, are anticipated to rise in the near future.

How Can We Help you Oppose a Winding Up Petition?

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors. If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition on the following grounds:

That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company; Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or In certain other limited circumstances (for example such as jurisdiction, technical or procedural error or delay).

To oppose a winding-up petition, you will initially need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing.

Your company is entitled to appear at the petition hearing so as to oppose the making of a winding-up order. It is a routine matter for companies to instruct solicitors and/or barristers to appear on their behalf at the hearing.