UK Business Insolvency Outlook for 2024

Home » Blog » Collections » UK Business Insolvency Outlook for 2024
by Martin Kingman 
| 23 June 2024

Forecasted Insolvencies 

    The Centre for Economics and Business Research (CEBR) has revised its forecast for business insolvencies from an initial 28,000 to an increased figure of 33,000. This adjustment comes after observing faster-than-expected rises in insolvency figures during the final quarter of 2023. Such a revision underscores a critical understanding that economic pressures and challenges from the past years continue to echo into the near future, affecting a wide range of businesses nationwide.

     

    Economic Outlook 

      Despite expectations for inflation to ease, the overall economic recovery is anticipated to be less impactful for businesses still grappling with financial distress. Key sectors such as construction, retail, and hospitality are expected to be most affected. These sectors have been at the forefront of insolvency statistics due to their direct interaction with consumer behaviour and economic shifts, suggesting that recovery trajectories may be uneven across different industries.

       

      Debunking the Zombie Theory 

        A notable discussion point that has emerged is the debunking of the so-called “zombie company” theory.

        The Zombie Company Theory refers to the concept of “zombie companies,” which are firms that are heavily indebted and have low profitability, making them reliant on external financing to continue operating. They typically generate just enough revenue to cover interest payments on their debt but not enough to reduce the principal. As a result, these companies do not have enough financial strength to invest in growth opportunities or improve productivity, making them economically unproductive.

        Contrary to the belief that most companies failing are merely unable to cover their debts while limping along, data and analyses suggest that the majority of business failures stem from more profound financial struggles that began during the pandemic. These businesses are not simply caught in a cycle of debt repayment but are fundamentally unable to recover to profitable operations, thereby challenging the narrative that access to favourable interest rates alone are keeping such companies afloat.

        Industry Response and Recommendations 

          Regulatory Changes:

          In response to the ongoing insolvency issues, significant regulatory changes are being considered. The UK government plans to reform the regulation of insolvency practitioners and implement the UNCITRAL Model Law on Enterprise Group Insolvency. These proposed changes aim to create a more supportive framework for businesses in distress, potentially offering more effective restructuring opportunities and aligning the UK with international standards in insolvency practice.

           

          Professional Support:

          Amid these challenges, the importance of early professional advice and support for businesses cannot be overstated. Companies facing uncertainties or the initial signs of financial trouble are advised to seek guidance promptly. This approach helps not only address immediate financial concerns but also plan strategic moves that could prevent further decline.

           

          As Q1 of 2024 has already demonstrated, 2024 is expected to be another challenging period for many UK businesses, with continued risks despite potential improvements in the economic landscape. Companies are encouraged to engage in timely and strategic planning and to utilise available professional resources to navigate these turbulent times effectively.

           

          The insights shared reflect a blend of economic forecasts, policy developments, and practical advice aimed at offering a comprehensive outlook for businesses facing the possibility of insolvency in 2024. As always, staying informed and proactive is key to adapting and overcoming the challenges ahead.

          Our Collection services

          Collections Overview

          UK Debt Recovery

          International Debt Recovery

          Enforcement

          Tracing

          Instruct Us

          Have we contacted you?

          Related articles

          Navigating Waterfall Payments in Business Insolvency

          Navigating Waterfall Payments in Business Insolvency

          Understanding how debts and obligations are settled is crucial for all parties involved when a business faces insolvency.  Waterfall payments play a significant role in these proceedings, determining the order and amount each creditor receives.  This guide delves into...

          Managing Digital Assets in Insolvency for Business Owners

          Managing Digital Assets in Insolvency for Business Owners

          On April 17, 2024, the UK Jurisdiction Taskforce (UKJT) released a landmark "Legal Statement on Digital Assets and English Insolvency Law." The statement clarifies how digital assets, such as cryptocurrencies and NFTs, are treated in insolvency cases.  If you're a...