With corporate insolvencies continuing to rise, what are the key issues which businesses should be thinking about when navigating difficult economic times?

Statistics released by the Insolvency Service confirm that the number of registered company insolvencies in England and Wales generally continue to remain higher than in the same month last year. The latest available monthly figures show that there were 17% more registered company insolvencies in September 2023 compared to September 2022 which, as recognised by the Insolvency Service, “is higher than levels seen while the Government support measures were in place in response to the coronavirus (COVID-19) pandemic and also higher than pre-pandemic numbers”.

The 1,967 registered company insolvencies in September 2023 can be broken down as follows:

  • 255 compulsory liquidations (14% higher than in September 2022) - compulsory liquidation is a court-based process, initiated when a petitioner (usually a creditor of the company) files a petition at court asking for the company to be wound up. The most common ground for such petition is that a company is unable to pay its debts.
  • 1,576 creditors' voluntary liquidations ("CVL") (19% higher than September 2022) - a company will enter a CVL if a special resolution is passed by a majority of at least 75% of its members who agree that the company should be wound up. Members of a company may take this action if it is considered that the company is no longer a viable prospect and/or if it cannot pay its debts.
  • 125 administrations (47% higher than in September 2022) - broadly, administration is a process of reorganisation of a company and/or realisation of its assets, under the control of an insolvency practitioner, with a view to rescuing the company as a going concern, achieving a better return for creditors of the company or realising property to distribute to specific creditors.
  • 11 company voluntary arrangements (the same as in September 2022) - an agreement reached with a company's creditors under the Insolvency Act 1986 which often consists of a compromise or other arrangement in respect of debts owed by the company.

In this context, what should businesses do to best manage insolvency risk?

We have produced a number of guides on key issues that we consider businesses should be thinking about or may encounter in the current economic climate. The topics we cover include:

  • Why is pro-active contract management so important now more than ever? Read more here.
  • What contract provisions may assist with the management of cash flow? Read more here.
  • Are contract amendments made in an economic downturn legally binding? Read more here.
  • How can you mitigate the impact of inflation and supply chain disruptions on commercial contracts? Read more here.
  • How do you deal with a counterparty who is facing insolvency? Read more here.

If you have any queries, please do not hesitate to contact a member of our Dispute Resolution team.

LS Unlock

Our “LS Unlock” initiative helps businesses access legal advice in challenging economic times. LS Unlock comprises a free initial assessment of significant commercial claims together with a menu of alternative fee arrangements which can reduce and, in certain cases, eliminate the upfront cost of pursuing a claim. This initiative has been designed specifically to assist clients in this uncertain economic climate and is part of our commitment to working with clients to help them survive its effects.