Rising Company Insolvencies in the UK: Causes, Impact, and Investigative Strategies for Debt Recovery

Company insolvencies in the UK are on the rise, with recent figures from the Insolvency Service revealing a 6% increase from December 2024 to January 2025, and an 11% rise compared to January 2024. This trend indicates growing financial distress among businesses, with many struggling to stay afloat amid economic challenges.

For debt recovery professionals, insolvency lawyers, and corporate investigators, this surge presents both challenges and opportunities. Understanding the causes behind the increase, its impact on creditors, and the investigative strategies available can significantly improve debt recovery outcomes.

The Numbers: A Snapshot of UK Company Insolvencies

According to the latest Insolvency Service statistics, January 2025 saw:

• 1,971 company insolvencies in England and Wales, an 11% rise from the previous year.

• 1,650 of these were creditors’ voluntary liquidations (CVLs), where directors voluntarily wound up the business due to insolvency.

• 250 compulsory liquidations, often initiated by creditors.

• Rising administration cases, suggesting more businesses are restructuring instead of closing outright.

This increase highlights financial instability across industries, particularly in construction, retail, and hospitality, sectors that have been significantly affected by inflation, rising interest rates, and supply chain disruptions.

Why Are Company Insolvencies Increasing?

Several economic and financial factors are contributing to the growing number of corporate failures:

1. High Interest Rates and Debt Burdens

Many businesses took on additional debt during the COVID-19 pandemic through government-backed loans such as Bounce Back Loans (BBLs) and Coronavirus Business Interruption Loans (CBILs). Now, with higher interest rates, companies are struggling to service these debts.

2. Inflation and Rising Costs

The costs of goods, services, and wages have all risen, squeezing business margins. The Consumer Prices Index (CPI) inflation rate remains stubbornly above 4%, making it harder for companies to manage overheads.

Impact on Insolvencies:

• Small businesses with tight margins are failing to keep up with rising costs.

• Large firms are passing on costs to consumers, leading to reduced demand and lower revenue.

3. Decreased Consumer Spending

Higher living costs mean UK households are spending less on non-essential goods and services. This has hit retail, hospitality, and leisure sectors, forcing many businesses into insolvency.

4. Expiring Government Support

Government support schemes, such as energy subsidies and COVID-related business rate reliefs, have either ended or been significantly reduced. Businesses that previously relied on these reliefs are now facing financial strain.

5. HMRC Crackdown on Tax Debt

HMRC has intensified debt collection efforts, particularly targeting businesses that deferred tax payments during the pandemic. The agency is increasingly using:

• Statutory demands to force businesses into liquidation.

• Winding-up petitions against firms failing to pay overdue VAT, PAYE, and Corporation Tax.

In 2024 alone, HMRC was responsible for over a third of compulsory liquidations, a trend expected to continue in 2025.

The Impact of Rising Insolvencies on Creditors and Debt Recovery

For creditors, the growing number of company insolvencies raises serious concerns about recovering outstanding debts. Traditional debt collection methods often fail when a company enters liquidation, making pre-insolvency investigations and enforcement strategies critical.

Challenges for Creditors:

• Reduced recovery rates – Once a company is liquidated, unsecured creditors often receive little to no repayment.

• Asset dissipation risks – Some directors move assets out of the company before insolvency, making recovery more difficult.

• Delays in legal processes – Liquidation and administration proceedings can take months or years to resolve.

 Investigative Strategies for Debt Recovery in an Increasing Insolvency Climate

Debt recovery professionals and insolvency lawyers can improve recovery rates by leveraging investigative intelligence before and during insolvency proceedings.

1. Pre-Insolvency Asset Investigations

Before taking legal action against a company, conducting an asset investigation can determine whether debt recovery is viable. Key steps include:

• Company financial analysis – Reviewing Companies House filings for signs of financial distress.

• Property and asset searches – Analysis of property ownership and indications of possible vehicle ownership.

• Corporate structure mapping – Identifying subsidiaries or related companies that might hold assets.

2. Investigating Directors for Misconduct

Many directors of insolvent companies continue trading under new company names ("phoenix companies") or have a history of insolvency. Investigators can:

• Identify repeat offenders who shut down companies to avoid paying debts.

• Trace director movements to new businesses, helping creditors pursue claims under the Insolvency Act 1986.

Under Section 216 of the Insolvency Act 1986, directors of liquidated companies can be personally liable if they set up a successor company to evade debts.

3. Tracing Fraudulent Transfers and Asset Dissipation

Before a company becomes insolvent, assets are sometimes transferred to family members, offshore entities, or hidden corporate structures. Investigations can:

• Uncover fraudulent transactions under the Fraudulent Conveyances Act 1986.

• Use forensic accounting to track missing funds.

• Support legal action to recover fraudulently transferred assets.

4. Using Freezing Orders and Injunctions

If a debtor is suspected of moving assets to avoid paying creditors, courts can issue freezing orders under the Senior Courts Act 1981. Investigative evidence is often required to prove the risk of dissipation.

If you need assistance in tracing assets, investigating insolvent companies, or uncovering director misconduct, Satori Intelligence is here to help. Please contact us today to discuss how our investigative expertise can strengthen your debt recovery strategy.

Published on 8 April 2025