HMRC winding up petitions push up insolvency figures

HMRC winding up petitions push up insolvency figures

Sep 16, 2023

The number of company insolvencies in August 2023 was 2,308, up 19% on the previous year as concerns grow after the collapse of Wilko

The August figure was up from 1,941 a year ago, reflecting tougher trading conditions after pandemic support measures were removed and companies started to pay back covid loans. Together with the cost of living crisis hitting consumer spending, a tight labour market and soaring electricity and gas prices, companies are showing signs of distress.

There were 221 compulsory liquidations, which was 45% higher than August 2022 with a smaller rise in creditors’ voluntary liquidations (CVL) to 1,880, up 13%. The rise is even starker when compared with pre-covid figures when the monthly figure was 1,365 total company insolvencies.

Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in HMRC winding-up petitions to companies which owe substantial tax bills.

Mark Supperstone, managing partner at ReSolve, said: ‘HMRC winding-up petitions are at the highest level since the pre-pandemic era. It appears HMRC is taking a much more aggressive approach to its collection processes at a time when businesses are facing a plethora of challenges.

‘As we see CBILs loans becoming due for repayment there may be additional pressure on businesses, with the construction and retail industries in particular likely to be heavily impacted.’

HMRC action is welcomed as it tries to make up for the decline in winding up activity during the pandemic.

Matthew Padian, insolvency expert and partner at law firm Stevens & Bolton, added: ‘It’s evident that the days of pandemic era relief are over. HMRC is no longer sitting back on the sidelines waiting for other creditors to bite the bullet and call time on a non-paying debtor.’

The SME sector is being hit particularly hard by the current trading situation, many without the cushion of strong cashflow.

Nick O’Reilly, director of restructuring and recovery at MHA, said: ‘The statistics continue to paint a dreary picture, with small liquidations dominating. The recent demise of Wilko serves as a stark reminder of the challenges facing the sector.

‘With Christmas approaching, retailers will be pinning their hopes on a much-needed seasonal boost. It is high time for the government to take decisive action to protect businesses and consumers by addressing the sector’s pressing concerns with more comprehensive reforms.

‘Unfortunately the government’s recent revisions to insolvency regulation have fallen disappointingly short of expectations. Rather than delivering the hearty reform needed to boost consumer and business confidence, these changes appear cosmetic and inadequate.’

One of the key factors driving the level of corporate distress is a reduction in access to capital and liquidity amid ongoing financial pressures.

Andy Davis, strategic advice director, Azets, said: ‘We are seeing a reduction in access to capital and liquidity which when added to the pressures businesses are already under, is likely to lead to even shorter runways when a business becomes stressed.

‘It’s always hard to predict future trends, particularly in restructuring, where insolvency volumes have been on the climb over the past 18 months but perhaps not as high as expected.

‘The number of failures have been lower than some experts anticipated. Having moved from a gentle period of low interest rates, low inflation and high government support through Covid in particular, the cost of living cocktail of challenges was expected to drive a more rapid impact on insolvency volumes.

‘The recent shock upward revisions to the ONS national output data, which indicates a stronger bounce post Covid, might provide some reasoning for this. But we still expect insolvencies to increase for many months to come. In order to reduce the risk of insolvency, we encourage businesses to seek restructuring advice early.’