Analysis and Commentary on the Insolvency Statistics Q2 2023

The quarterly insolvency statistics for April to June 2023 show that corporate insolvencies across the UK¹ are at a 14-year high.

Increased insolvencies appear to be continuing with the monthly statistics for both August and September 2023, showing corporate insolvency numbers were higher than the same month last year. July’s figures showed a slight decrease year on year.

Deciding the parameters of directors' personal liability for actions, or omissions, when a company continues to trade while it is or near insolvent requires a balance to be struck between allowing directors latitude to try to rescue the company and protecting the company's creditors.

Protecting your business from exposure to supplier and customer insolvency

As we move through Q1 of 2023, significant shifts are occurring in the Global financial and economic landscape which are of significant consequence for business. The marked upward shift in the cost (and reduced availability) of finance, largely unseen for over a decade, combined with high energy and natural resource/raw material costs and challenges and currency fluctuations has the potential to sharply to expose financial distress in businesses in many countries and global supply chains.

The rapidly changing impact of COVID-19 on companies and the wider economy presents directors with the unenviable task of balancing the immediate need to secure the survival of their company against the longer-term implications for their stakeholders. In March, the UK Government announced that wrongful trading measures would be temporarily suspended to ease this pressure. The suspension measures are included in the Corporate Insolvency and Governance Bill, which introduces both temporary measures, such as this, and permanent and significant changes to UK insolvency law.

In a recent opinion – In re Heritage Home Group LLC, et al., Case No. 18-11736 (KG), 2018 WL 4684802 (Bankr. D. Del. Sept. 27, 2018) – the Delaware Bankruptcy Court addressed the longstanding issue of which professional persons must be retained under section 327(a) of the Bankruptcy Code.

A fundamental tenet of chapter 11 bankruptcies is the absolute priority rule. Initially a judge-created doctrine, the absolute priority rule was partially codified in section 1129(b)(2)(B)(ii) of the Bankruptcy Code. Under section 1129, plans must be “fair and equitable” in order to be confirmed.

Background: Professionals’ Fees in Chapter 11 cases