There have been some very gloomy stories in the press over the last week or so about rising company insolvency rates. All rather unwelcome during the season of goodwill.

Everyone knows that British businesses are facing a hugely difficult time with challenges coming from all directions – including high energy bills, rising interest rates, strikes, geopolitical uncertainty etc. etc.

But amidst the gloom there are some positives. For example:

As the chill of recession bites for homes and businesses alike, SMEs are faced with the daunting prospect of navigating their way through the bleak mid-winter. In October 2022, inflation reached 11.1% and company insolvencies were 38% higher than the same period last year. Creditors’ voluntary liquidations in the same period were 53% higher than in 2019 (i.e. pre-pandemic), continuing the theme of businesses being forced to consider this terminal insolvency process, as following the pandemic they have struggled to adapt to the challenging market conditions.

Further to our previous article, which can be found here, we consider the key issues with which the Court faced, the technical legal analysis underpinning this judgment and our view on what this may mean for energy suppliers, and the sector as a whole, looking forward.

Background - what was the application and why was it needed?

Careful contract negotiation can limit the potential damage from insolvency in a construction firm’s supply chain.

Whilst creditors’ voluntary liquidations (CVLs) have spiralled in number in recent months, the formerly popular company voluntary arrangement (CVA) has fallen out of the limelight. There were only 29 registered CVAs in Q3 2022, representing just 1% of recorded company insolvencies and languishing behind administrations (also down in number compared with Q2 2022).

A falling trend

Cryptocurrency exchange FTX has filed for bankruptcy in the USA after the proposed bail-out by rival exchange, Binance, fell through earlier this week.

With rising insolvency rates, driven in particular by the number of creditors’ voluntary liquidations reaching record highs, the decision in the recent Court of Appeal case of PSV 1982 Limited v Langdon [2022] EWCA Civ 1319 serves as a timely reminder for directors of the personal risks involved in re-using the name of a liquidated company.

Once hailed as having the potential to add £5.7 billion to the UK economy in 2016, Northern business leaders operating in the tech space met to discuss how best to unlock the sector's growth potential. As part of CyberFest, Womble Bond Dickinson, alongside a host of tech experts and business leaders, aimed to tackle the issue head-on in an insightful roundtable.

The Supreme Court handed down its long-awaited judgment in BTI 2014 LLC v Sequana SA on 5 October 2022. This important case addresses the duties of directors to consider the interests of creditors as a company approaches insolvency.

While the judgment will be welcomed by many as providing some useful guidance on a number of issues, there still remain some key areas of uncertainty which, as we consider in further detail below, will present clear challenges for directors seeking to navigate their way through a company’s financial difficulties.

The government’s monthly insolvency statistics for August 2022 present a concerning trend for companies hoping to weather the storm amid the current economic crisis. Largely driven by creditors’ voluntary liquidations, company insolvencies were 43% higher than the same period last year and 42% higher than in 2019 (pre-pandemic).