When we wrote our regular monthly blog about the latest corporate insolvency statistics, we naturally concentrated on the headline figures and the broader trends they signified. 

But contained within is another interesting subtext that should be getting more attention and that is the recent strong rise in the number of compulsory liquidations. 

A compulsory liquidation or winding up is when a court decides that a company cannot be relied upon or is unable to settle its debts in a timely fashion so they intervene to order its closure and have its assets sold so creditors get some return on their lending. 

There were 248 Compulsory liquidations in July 2023 which have risen by 81% year on year (compared to July 2022) even though overall monthly corporate insolvencies were slightly lower compared to a year previously. 

Compulsory Liquidations 2019 – 2023*

Year Compulsory Liquidations
2019 2,945
2020 1,353
2021 491
2022 1,959
2023* 1,561
Total 8,309

All figures from The Insolvency Service. *Up to and including the end of July 2023

Between September 2021 and March 2022 there were temporary restrictions placed on creditors’ recovery actions such as statutory demands and winding up petitions otherwise these figures would have been even higher. 

The figures rebounded strongly after restrictions were lifted in 2022 and the total up until the end of July 2023 has already seen a greater number than in 2020 and 2021 and is likely to surpass the annual total from 2022. 

But what circumstances can lead to a business having to face compulsory liquidation?

Compulsory liquidation warning signs 

There are several warning signs that might indicate your business is at risk of a compulsory liquidation: 

  •  Cash flow problems 

This is one of the most common signs of financial difficulty. In a nutshell, a cash flow problem is when the cash going out of the business outweighs the cash coming in. This causes a lack of liquidity which can lead to missed payments to suppliers and creditors, eventually forcing the business to close. 

  • Reduced profitability

If a business is not making a profit, it is unlikely that it can be sustainable in the long run. There are multiple reasons for why your business may be experiencing reduced profitability, such as, higher supplier costs, increased competition, industry changes as well as changes in consumer demand. 

  • Increasing debt

Debt can be a useful tool for businesses, but can also be a major liability. A business may choose to take on more debt to stay afloat however, if a business is unable to repay its debt, it can certainly lead to liquidation.

  • Late/missed payments to creditors

If a business is consistently late/missing payments to its creditors, they may begin to demand payment in full putting more strain on finances. It is important to acknowledge communications from creditors requesting payment as failure to do so may result in them filing for a Winding Up Petition, which is one of the most serious threats a business can face. 

  • Lawsuits or regulatory investigations

The aftermath of these investigations usually result in serious consequences for businesses. These may be financial, but may also mean irreparable damage to the businesses reputation, which makes it difficult for businesses to attract new customers and investors 

  • Poor public perception

Negative conversation circulating about a business can have a serious impact on the future of a business. When there is frequent negative feedback, it is often a sign people are losing confidence in the products/services it provides. This can in turn make it difficult for a business to attract new customers and raise capital to keep the business afloat. 

  • Accountants 

One of your most important assets in catching the early signs of potential compulsory liquidation is through your accountant. They know the financial ins and outs of your business sometimes better than you and will be able to confirm if your company could benefit from getting advice from an insolvency professional before there is no choice but to call one.

Chris Horner, insolvency director with BusinessRescueExpert, said: “The latest business insolvency statistics confirm a trend we’ve seen that liquidations are continuing to rise at a rate of almost double from 2022 throughout 2023. 

“Despite the total number of insolvencies reducing last month, the long term trend is definitely up and the rise of compulsory liquidations in particular should be a concern for directors and business owners. 

“Sadly, many directors don’t react quickly enough to the signs of distress we’ve outlined and have no choices left whereas if they move earlier in the process, they can have many more options including administration or a creditors voluntary liquidation where they retain a far greater role in the process. 

“So if you’ve seen any of the signs we’ve outlined then you should get in touch with us as soon as you can while you still have a choice.”