Behind the Headlines - Insolvency Statistics Don’t Lie?

The start of the year has been marked by geopolitical upheaval and market instability. “You must be busy” is a common refrain from outside the insolvency sector, but the reality is more nuanced. Heightened uncertainty is distorting behaviour, delaying outcomes and reshaping how distress presents itself. A number of structural and policy‑driven factors are also influencing the use of insolvency processes, both generally and across specific sectors.

In February 2026 there were 249 compulsory liquidations—up on January but below both February 2025 and the 2025 monthly average—while overall insolvencies were down 7% year‑on‑year. This warrants closer examination.

Administrations, CVAs and restructuring plans remain largely flat, reflecting the continued lack of meaningful rescue finance. Margins remain tight across most sectors and traditional bank lending is constrained. Although private credit has filled part of that gap, recent market instability in this sector may increase lender caution, limiting capital available to distressed businesses and reducing the viability of rescue‑led outcomes.

Liquidation remains the dominant insolvency process. HMRC accounts for well over half of compulsory liquidations and has a significant indirect influence on voluntary liquidations, where directors conclude that tax arrears are no longer manageable. Enforcement activity has risen steadily since 2024 following the shift away from pandemic‑era forbearance. In a weak growth environment, narrowing the tax gap has become a central Treasury objective. Supported by an additional £630m in funding, increased staffing and enhanced digital tools, HMRC has targeted taxpayers deemed able but unwilling to pay and/or using HMRC to fund working capital (HMRC Annual Report 2024/25).

This shift drove a sharp rise in liquidations during 2025 as pent‑up enforcement pressure was released. That increase has since moderated, with 2025 now viewed as anomalously elevated as the most distressed cases reached court earlier and were more likely to result in winding‑up orders. Now continued intensive enforcement does not translate automatically into higher compulsory liquidation numbers, particularly where petitions are settled, adjourned or diverted into alternative outcomes.

The emerging “new normal” reflects widespread acceptance of reduced HMRC tolerance. Businesses are less likely to be caught unawares and more inclined to engage early, seek adjournments or settle liabilities—sometimes with short‑term financing. In parallel, tougher enforcement expectations can accelerate informal restructurings or managed wind‑downs outside the formal insolvency framework, creating a lag between enforcement activity and recorded insolvency outcomes.

"It’s the Economy, Stupid"

Geopolitical shocks rarely feed immediately into insolvency statistics but are often precursors to economic uncertainty and recessionary pressure. Insolvency outcomes typically lag deteriorating conditions by 2–4 quarters, as rising leverage, missed payments, covenant stress and HMRC arrears accumulate.

The macro‑economic outlook is challenging. With growth near zero and tax receipts under pressure, fiscal headroom for stimulus or tax cuts is limited. Elevated borrowing costs constrain deficit‑financed intervention, while persistent inflation—particularly linked to energy price volatility—raises the risk of further interest‑rate tightening. Recessionary concerns are therefore well founded.

For now, many businesses are absorbing shocks rather than taking decisive action. As confidence weakens, cumulative pressures from delayed refinancing, higher debt‑servicing costs and prolonged uncertainty are likely to result in a grinding increase in failures rather than a sharp spike, with smaller and under‑capitalised businesses most exposed.

Sector Risks

The most exposed sectors share three characteristics: thin margins, high energy or labour intensity, and sensitivity to discretionary demand.

Construction and development remain the most vulnerable by volume, with cash‑flow fragility, cost overruns, limited access to rescue finance and complex subcontractor networks meaning even modest shocks can trigger insolvency. Hospitality, leisure and retail are disproportionately affected by inflationary and trade‑related shocks. Hospitality faces additional structural challenges, including high fixed costs, long leases, inflexible labour models and seasonal trading. Despite recovered occupancy in parts of the hotel market, margin erosion—rather than demand—remains the core issue.

Retail is relatively more resilient but faces similar pressures, with inflation‑sensitive consumers limiting growth and cost increases feeding through gradually, particularly where businesses are tied into fixed‑price contracts. Manufacturing, especially energy‑intensive and export‑exposed businesses, remains vulnerable to elevated input costs and disrupted trade routes. Recruitment, media and technology have also seen rising distress, driven by weaker confidence, deferred hiring and tighter access to capital.

While an improvement in macro‑economic conditions could materially alter the outlook, current data points to a fragile equilibrium—sustained by early intervention and creditor or lender forbearance rather than underlying balance‑sheet strength.

By Vernon Dennis, Head of Business Advisory at Howard Kennedy