Compulsory liquidations hit decade-long high as firms face rising costs

The number of companies going into compulsory liquidation hit its highest point in more than a decade last month, according to official data.

Some 393 companies were forced to wind up in February across England and Wales – the highest monthly number since September 2014, the Insolvency Service said.

Compulsory liquidation is when a firm is ordered to shutter by a court because it is unable to pay its debts.

Meanwhile, the number of overall companies closing down fell 7% compared to the same month last year, at 2,035.

That figure, however, includes firms that have chosen to shutter, rather than being forced to stop trading because of having run out of money.

There were 1,520 creditors’ voluntary liquidations, 115 administrations and seven company voluntary arrangements.

The numbers come ahead of a crunch moment for companies in April, when tax and minimum wage increases announced at the October Budget come into effect.

David Hudson, a partner at consultancy FRP, said both companies and consumers are “cutting their cloth, which is ultimately driving down demand”.

This, combined with higher operating costs from tax changes is not “a sustainable position for any company to be in”, he said.

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The numbers will come as a fresh blow to Labour ahead of its Spring Statement, following disappointing recent figures on the economy.

The Government has made economic growth its top priority, but the economy contracted 0.1% in January, according to recent official data.

Construction was the worst-affected industry, with 17% of insolvencies involving firms in the industry.

Kelly Boorman, head of construction at the consultancy RSM UK, said this is “to be expected given the ongoing burden of expensive debt and fragile supply chain”.

“The industry is already under-resourced, and the increase to labour costs will squeeze margins.”

Meanwhile, the Bank of England is expected to keep interest rates at their elevated level of 4.5% at its monetary policy meeting this week, meaning the cost of borrowing will remain high.

There were 103 insolvencies registered in Scotland last month, up 10% year-on-year, while Northern Ireland saw 21, down by a fifth.

Giuseppe Parla, a director at the consultancy Menzies, added that higher costs coming in April means the UK “may well be heading towards yet more collapses”.