Recent data highlights a notable decrease in insolvency figures for August 2024, attributed to the positive impact of a summer of sport and favourable weather conditions.
The retail and hospitality sectors in England and Wales experienced a reprieve as the number of insolvencies fell by 5% in August compared to July. However, this 16% year-on-year rise underscores the ongoing challenges within various industries. Approximately 10,000 individuals were declared insolvent last month.
In August, there were 594 bankruptcies, 4,166 Debt Relief Orders (DROs), and 5,240 Individual Voluntary Arrangements (IVAs). The last five months have seen a record high in the number of DROs issued, while IVAs remained consistent with the previous year’s monthly averages. Bankruptcy numbers, meanwhile, are at roughly half the levels observed before 2020.
David Kelly, head of insolvency at PwC UK, remarked that the August figures were down 9% from July and 15% from the previous year. He suggested that the decrease was unexpected, indicating that factors beyond the typically quieter business period in August may be influencing the trend. Kelly noted, ‘A summer of sport and warmer weather from the end of July will have provided some relief to the retail and hospitality sector, offering a temporary boost in business activity.’
Despite this respite, there has been a rise in insolvencies within the business services, construction, and engineering sectors. Kelly emphasised that the Midlands saw 17% of the overall insolvencies in August 2024, up from 14% the previous year. The engineering sector, particularly affected by pressures across the automotive supply chain, has contributed significantly to this increase.
Analysing year-on-year data up to August 2024, Kelly mentioned that overall insolvency figures are at comparable levels. He stated, ‘Historically, we tend to see more insolvencies as we come out of a recessionary landscape, with companies unable to fund the increase in working capital as order books strengthen.’ He projected that the total insolvency figure for the year might exceed 25,000.
Jennifer Lockhart, an insolvency specialist at law firm Brabners, observed that while a drop in business failures is welcome, the overall insolvency levels still reflect a challenging business environment. She pointed to persistently high-interest rates and the waning optimism from earlier in the summer. Lockhart noted, ‘SMEs will take some solace in government plans to pass new legislation addressing poor payment practices and improving cash flow within supply chains, though its effects will take time to manifest.’
Ben Drew, a partner at Alius Law, commented on the persistent rise in corporate insolvencies, despite a return to business confidence amidst recent interest rate cuts and cooling inflation. He attributed the continued surge to various factors, including industry-specific challenges, such as rising costs in the construction sector and prolonged consumer spending caution affecting retail and hospitality.
Drew highlighted a concerning trend of using winding-up and bankruptcy petitions as pressure tactics in contentious situations. He remarked, ‘Our recent experience indicates a return to pre-pandemic levels of using these petitions as a sword rather than merely as a shield.’
The latest insolvency figures for August 2024 reveal a complex picture. While some sectors have benefited from temporary boosts, underlying economic pressures continue to drive insolvencies, particularly in the Midlands and specific industries like engineering and construction. The data suggests that the overall insolvency landscape remains challenging, with significant regional and sector-specific variations.