The start of a slowdown?

31 October 2024

Following the traditional summer slowdown, corporate insolvency appointments increased again in September. Despite this, the figures were still lower level than this time last year and continued the trend we have seen of (largely) lower monthly insolvency figures than in 2023.

With firms still facing high costs and concern over the impacts of tax changes in the lead up to and the aftermath of the Budget, the jury is out on whether numbers will remain lower than last year or increase again in the run up to Christmas…

A declining curve?

Although September’s insolvency figures increased compared to last month, a closer inspection of the data suggests numbers are falling compared to last year. Overall corporate insolvencies were lower than in September 2023, and a look at the wider trends suggests that the dramatic rise in insolvencies that we saw last year may be over – or at least starting to decline. This is being driven in part by a fall in CVL numbers and compulsory liquidations.

A changing trend

One notable takeaway from last month’s statistics is the news that administration numbers are higher than last month and this time last year – as well as for the year-to-date when compared to the same period in 2023.

Members are telling me they are seeing an increased demand for restructuring advice and support, which would suggest that appointments will increase in the coming months. That is reflected in my own experiences, and I believe is the result of two factors. 

Firstly, directors may be being more proactive about seeking advice. And secondly, there have been a number of legal developments and high-profile cases that have put Restructuring Plans more firmly in the minds of business owners.

The Tasty plc ruling opened up Restructuring Plans to mid-sized firms, which has led to an increase in demand for this process from that section of the market, while cases like Revolution Bars, Superdry and Cineworld have meant that Restructuring Plans have been featured in the business press and been a topic of conversation among the business community in a way they were not a year ago. 

However, we still face the challenge of making Restructuring Plans accessible to the SME market. The demand for this process is there, and we certainly seem to be making progress in that area, even if the result – the desired caselaw – has not been delivered yet.

Given the number of conversations I have with members about this and the desire from the profession and from the market for it, I’m hopeful it will not be too long before this situation changes.

Most people in the profession who I have spoken to are telling me that the end of September and the start of October has seen an increase in enquiries. Pre-Budget concerns and worry about the potential impact of the Middle East conflict seem to be key drivers of this.

Rachel Reeves’ rumoured tax plans for Capital Gains Tax were a key factor in a rise in demand for advice and support around Member Voluntary Liquidations over the last couple of months, and whispers of her possible intention to change to business asset disposal relief are likely to have driven shorter-term demand for this process.

What impact the Chancellor’s Capital Gains Tax decision has on MVL numbers remains to be seen, but the fact the increased rate was well below the 39% that had been mentioned in the media will be a bonus to a number of business owners who had feared a higher increase would be introduced.

However, there is no denying that a number of the policies announced in the Budget will have consequences for firms right across the UK. The increase in business rates and employer National Insurance Contributions will lead to a rise in costs for many firms (although there is some mitigation for the smallest businesses from both policies), and in many cases it is unlikely they will be able to pass these costs onto their customers. Having to absorb additional costs when margins are already squeezed will be challenging for many businesses – particularly those in the hospitality and care sectors – and could be the final straw for those who are struggling to remain solvent.

Businesses have time to consider their options as a number of the policies announced in the Budget will not come into force until April of next year. This may lead to an increase in enquiries for restructuring advice in the coming months.

A critical period

There’s no denying the business climate is still challenging, but some sectors have seen an improvement in income and footfall of late, with retail sales increasing again in August and September, and the hospitality sector seeing a rise in spending last month.

Directors in these industries and others will be hoping this is the prelude to a successful pre-Christmas trading period. However, it is worth noting that last year’s so-called “Golden Quarter” was a disappointing one, and if this year’s follows the same pattern, the deceleration in corporate insolvencies we have seen since the end of the summer could stop – or even reverse… 

Tim Cooper is President of R3 and a Partner at Addleshaw Goddard LLP.