Insight & Analysis

The slow flow of liquidation

Published: May 2024

The mechanism for winding-up failed businesses might be well established, but it is not necessarily a straightforward – or rapid – process.

Slow river water flowing

The latest government data shows the number of registered company insolvencies in England and Wales in March was 17% lower than in February and 17% lower than the same month in the previous year.

The number of creditors’ voluntary liquidations decreased by 18% from February and was 19% lower than March 2023 after seasonal adjustment, while the number of seasonally adjusted compulsory liquidations was 3% lower than in February and 9% lower than in March 2023.

However, the number of company insolvencies registered in Scotland was 11% higher than in March 2023 and the total insolvency rate in the 12 months to March 2024 was 1.9% higher than in the 12 month period ending March 2023.

In Northern Ireland the number of company insolvencies registered in March was twice as high as in March 2023, although the total insolvency rate per 10,000 companies on the effective register in the 12 month period to March was 5.9% lower than in the 12 month period ending March 2023.

The latest Begbies Traynor ‘red flag alert’ paints a worrying picture, suggesting the number of UK businesses in significant financial distress has risen by more than 30% compared to the first quarter of last year and the number in critical distress is more than 20% higher than this time last year.

While these figures are interesting, perhaps even more interesting is the fact that liquidations can take years to complete.

The response to a question tabled in the Lords last month revealed that 20,822 companies had unfinalised liquidation processes extending over more than 15 years, with a further 8,189 with an unfinished liquidation process of more than a decade as of the end of last year.

Elliot Green is CEO of Hertfordshire-based business recovery specialist Oliver Elliot and has more than 20 years’ experience dealing with company insolvencies. He says there are many different reasons why liquidations can remain unfinished over many years.

“Insurance insolvencies can take many years to resolve claims and run-off issues,” he says. “A common feature – certainly in my experience of delays to cases – will be litigation as a means to resolve disputes and/or swell the assets of a liquidation estate, for example claims against directors who in breach of duty have caused avoidable losses to a company. Litigation can often arise in the liquidation process and it may appear to move through the court system at a somewhat slow pace.”

Another issue that can slow down a liquidation is when a liquidator seeks to obtain or reconstruct records and assemble information so a company can be fully investigated.

“Gathering this information can be a time consuming and expensive process, particularly if you need as liquidator to enlist the assistance of the court to compel people to produce documents,” says Green. “These applications can be heavily contested and although they may amount to satellite litigation, they can result in mini-trials over matters of disclosure in their own right.”

When asked whether there are any measures that could be introduced at industry or regulatory level to make the liquidation process more efficient, he suggests that liquidations are already heavily regulated and this does not slow the process.

“Until or unless we have a court system that enables cases to move through it in a speedy manner with even more robust case management and with liquidators able to obtain information they may reasonably require even more quickly, I cannot readily see how the pace of many of those types of liquidation will necessarily speed up,” adds Green. “In general terms it seems to me that litigation generally may need to move more quickly if people wish for such liquidation cases to progress at a faster pace.”

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