an office space littered with plastic tubes and a chair on its back
High demand: more than 25,000 companies in Britain registered as insolvent in 2023, a 14 per cent rise on 2022 © Getty Images

Company insolvencies are running at a 30-year high in the UK, signalling a busy year ahead for corporate restructuring and bankruptcy specialists.

More than 25,000 companies in Britain registered as insolvent in 2023, a 14 per cent increase on 2022, according to the UK’s Insolvency Service.

Corporate distress experts say demand for their services is increasing as businesses battle the effects of inflation, higher interest rates and a tight labour market.

“When you’re talking around town, all the professionals, lawyers and people in restructuring are saying they are busier,” says David Fleming UK head of restructuring at financial advisory firm Kroll.

“If you look back at last year, in the last three or four months, you were starting to see activity at pre-pandemic levels . . . I don’t think there will be a tsunami [of big companies going insolvent] but we are all busy again.”

Many directors and financiers had expected the collapse in economic activity during the pandemic to lead to a rise in corporate distress, which would have been a boon to restructuring specialists. But government support schemes — including grants, loans and sector-focused initiatives such as Eat Out to Help Out, which paid part of diners’ restaurant bills — helped many businesses to pull through.

Blair Nimmo, chief executive of Interpath, the UK insolvency and restructuring advisory business spun out of KPMG in 2021, said in December that the restructuring market had “not turned out to be quite as hot as people thought it would be”.

The sector has become progressively busier after several “false dawns”, he acknowledged at the time. “But do I see some sort of avalanche [of activity]? No, I don’t.”

While the number of corporate insolvencies has been increasing, the vast majority of these are accounted for by voluntary liquidations — typically reflective of smaller businesses shutting down.

But administrations — a process generally seen by advisers as a better indicator of the health of mid-sized or larger groups — are also on the rise. There were 1,567 company administrations in England and Wales in 2023, up from a low of 796 in 2021, according to official data.

Advisers, including Fleming at Kroll, say they expect some large companies to face real financial difficulties as their multiyear debt facilities come to an end and require refinancing at higher interest rates.

The Bank of England raised interest rates 14 times between December 2021 and August 2023, from a record low of 0.1 per cent to 5.25 per cent. Even if the Bank begins to cut rates this year, as expected, companies arranging new loans could face significantly higher borrowing costs than last time around.

Predictions that more large companies will face financial strain are backed by research from EY, which found that almost one in five UK listed companies issued at least one profit warning last year — a greater proportion than at the peak of the global financial crisis in 2008.

While smaller companies accounted for the lion’s share of these warnings at the start of 2023, the effect on bigger businesses grew as the year wore on.

One-third of the warnings in the final three months of the year were from companies with annual revenues of more than £1bn.

Two years of high inflation and other shocks, such as the supply chain disruption from Russia’s war with Ukraine, hit many businesses just as they were recovering from the pandemic.

“That sustained pressure has impacted small and mid-sized firms first because they’ve had less flexibility to adapt,” explains Jo Robinson, UK and Ireland turnaround and restructuring strategy leader of EY’s strategy advisory business.

“They may not have as much liquidity or access to capital to be able to withstand those shocks. Our regional businesses have been busy . . . but we are starting to see those multi-national, cross-European, global businesses reaching out and needing support.”

Some privately owned companies are also feeling strain, creating opportunities for restructuring specialists. These can include situations where private equity owners decide to hand creditors the keys to struggling businesses in their investment portfolios.

Advisers say they are also being called on to help companies with strategic plans to improve their finances and make their operations more efficient. Lenders concerned about companies not being able to repay on time are another source of work.

The pressure is being felt across sectors, with several experts pointing to the real estate market — particularly commercial office space, where occupancy has suffered from the rise of remote and hybrid working.

Construction businesses and regional housebuilders have also been hit by rising costs, says Richard Fleming, European head of restructuring at consultancy firm Alvarez & Marsal. There are also signs of a rise in distress at companies specialising in technology or new product categories, he adds. They include electric vehicle and battery makers — such as Britishvolt, Volta Trucks and Arrival — which have been forced into insolvency processes since 2023.

Many companies in these sectors have had a lot of money thrown at them, says Fleming, but now their management teams have spent it and “they can’t get that next chunk of cash”.

As well as exposing poor management, a difficult economic outlook normally reveals examples of malfeasance or “hands in the till” at some companies, he adds. “We haven’t really seen the biggest calamities around that yet but I suspect they’ll come.”

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