The number of companies forced to close following petitions presented by creditors jumped 63% to 2,067 in 2023, up from 1,265 in 2022, says UHY Hacker Young, the leading national accountancy group.
Commenting on this, UHY Hacker Young partner, Brian Johnson, said: “Creditors, particularly HMRC are losing patience with companies that – in some cases – have failed to repay their debts for years. These creditors are now pushing to liquidate these debtors and recover whatever they can via a liquidation sale of that company’s assets.”
Creditors can range from suppliers that have not been paid, utility companies, banks and other lenders as well as HMRC. Applications by creditors to liquidate indebted companies went up 70% to 4,917 in 2023, up from 2,885 the year before.
Court orders to close a company, known as winding up petitions, are made by creditors against businesses who fail to repay their debts. Winding up petitions can lead to the forced liquidation of the business.
Many businesses are struggling to service their debts due to a sharp rise in interest rates over the last two years. Much of this debt was taken on during COVID. This has caused many businesses to delay paying their bills – or stop paying altogether.
Calling time on ‘Zombie companies’?
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By GlobalDataThe recent increase in winding up petitions is also being driven by HMRC working through the backlog of ‘zombie companies’. These businesses are only able to survive by failing to repay all of their debts, particularly tax debts.
On this, Johnson said: “The number of ‘zombie companies’ rose during Covid and are now contributing to the backlog of businesses that creditors are trying to liquidate.”
The HMRC customer service crisis is also contributing to these delays. HMRC delays in processing applications increases the time it takes to reach a verdict on applications. Once the applications make it to court, delays in the courts further slows the process.
What are the alternatives for companies who can’t repay their creditors?
Johnson advises that, despite the rise in winding-up petitions, there are ways to delay or prevent forced liquidation even after a petition has been filed.
Johnson said: “As well as carefully considering their company’s finances, directors should understand the rescue tools available to them. These include entering a Company Voluntary Agreement and/or requesting Time to Pay.”
A Time to Pay arrangement is an agreement with HMRC to pay off a business’s tax debt over an agreed period. When a business feels it cannot pay off its debts, it can proactively contact HMRC and set up a timetable to make these payments.
Company Voluntary Agreements are an alternative to a traditional restructuring plan. It allows an insolvent company to continue trading with the agreement of its creditors.
Johnson concluded: “If interest rates remain high, we should expect more and more creditors to apply for debtor companies to be liquidated. HMRC’s customer service scandal likely means the backlog of cases won’t be cleared anytime soon.”
