Last updated: 21 Oct 2024 01:00 Posted in:
The proportion of businesses entering voluntary liquidation in the UK has more than tripled, according to figures from the Insolvency Service.
Research by global automation platform Quadient, which analysed data from 1960 to 2023, found that the proportion of voluntary liquidations – shareholders choosing to close their business instead of being forced to by the courts – has spiralled since 2012.
Up to that point, the ratio of voluntary to compulsory liquidation remained at a steady average of 2:1. But in the past 12 years the share of voluntary liquidations has significantly increased, to 7:1 in 2023 and peaking at more than 25:1 in 2021.
Indeed, in 2023, one in every 272 UK businesses entered voluntary liquidation – the highest proportion recorded this century.
“There is no hard-and-fast rule on when a business enters voluntary liquidation,” said Joey Glazer, Director of AP Automation, at Quadient. “These statistics cover many different cases, from operations with decades or centuries of history that could no longer control their finances, to one- or two-person bands that only needed to exist for a limited time.
“What’s certain is that, despite the name, many of these so-called ‘voluntary’ liquidations will be anything but. Instead, people will be walking away because of external factors beyond their control, while seeking to retain whatever ownership of assets they can. For these businesses, and others looking to avoid the same fate, resilience to outside pressures is key. Businesses need to quickly spot when their finances might be getting into trouble, and ensure they both have fast cash flow and that their accounts are completely in order.”
The Insolvency Service defines a compulsory liquidation as “a winding-up order obtained from the court by a creditor, shareholder or director”, whereas a creditors’ voluntary liquidation is where “shareholders of a company can themselves pass a resolution that the company be wound up voluntarily”.
The total number of insolvencies in the UK has been steadily increasing alongside the number of businesses, from 1,563 in 1960 to 25,158 in 2023.
Glazer said: “Business leaders need to take control of their finances, so they have the flexibility to deal with the unexpected.
“Tools like AI and automation are essential for reducing precious time and resources being spent on manual finance processes. By optimising the finance function, businesses will have an awareness of how external factors might impact their bottom line and so can act accordingly. Primed with the latest technologies, businesses can face sudden external events with much greater confidence.”
“Tools like AI and automation are essential for reducing precious time and resources being spent on manual finance processes. By optimising the finance function, businesses will have an awareness of how external factors might impact their bottom line and so can act accordingly. Primed with the latest technologies, businesses can face sudden external events with much greater confidence.”
Joey Glazer, Director of AP Automation, Quadient