New hope for struggling Midland businesses despite insolvencies rise

UK company insolvencies soared in June – but many struggling Midland businesses could still be rescued from the threat of winding-up procedures.

New figures issued by the Midlands branch of insolvency and restructuring body R3 highlight growing numbers of companies which could stave off being wound up due to Company Voluntary Arrangement and Administration measures.

This trend emerged following monthly statistics published by the Insolvency Service which show that corporate insolvencies increased by 15.7 per cent in June 2024 to a total of 2,361 compared to the previous month’s total of 2,040, and by 17.1 per cent against June 2023's figure of 2,016. 

The research also shows that monthly corporate insolvencies increased by 49.5 per cent from June 2022's total of 1,579, and by 61.1 per cent compared to the pre-pandemic level of 1,466 in June 2019.

R3 Midlands Chair Stephen Rome (pictured), a partner at Penningtons Manches Cooper in Birmingham, said: “The rise in corporate insolvencies is driven by an increase in Creditors’ Voluntary Liquidations, which is a process usually used by smaller businesses and can be driven by cashflow problems or difficulties with access to finance.

“These latest statistics also show that compulsory liquidation numbers have risen to their second-highest level since January 2021, suggesting that creditors are taking a much tougher stance this financial year.

“But there are some positive signs in these figures for local businesses. Company Voluntary Arrangement and Administration numbers have increased compared to last month, and Administration numbers are higher than this time last year and in June 2019, indicating a growing number of businesses for which this is an option, and which have secured creditors willing to support rescue proposals.

“The reality, however, is that businesses are still trading amid high costs and cautious consumer spending. Despite recent data pointing to economic growth and falling inflation, it seems that the improvement has come too late for some. 

“While retail sales rebounded in May, they are still down year-on-year, and restaurant spending fell again last month as consumers continued to be cautious with discretionary spending.

“These sectors have struggled since the start of the year and have yet to bounce back from a disappointing pre-Christmas trading period, so we may see insolvency numbers increase in the autumn if trading conditions don’t improve.

“There was positive news, however, for the construction sector, which saw growth in May after a disappointing start to 2024 and a delay in new work at the end of last year. While the uncertainty the General Election will have brought this sector is likely to impact firms and output in the short term, the new Government’s pledges to invest in infrastructure and encourage housebuilding could reinvigorate two key markets for this industry if they come to fruition.

“It’s also worth noting that many local businesses continue to be positive about the future, with lower inflation and the prospect of higher sales and profits boosting their confidence about the coming months, but we’ve yet to see the full impact of the General Election on the economy and purchasing decisions, and, despite their optimism about the future, organisations remain concerned about customer demand, staff turnover and meeting their regulatory requirements.”