An empirical snapshot of English corporate insolvencies

• Published date: 01 December 2023
• Author: Asad Khan
• Date: 01 December 2023
• DOI: http://doi.org/10.1002/iir.1522

RESEARCH ARTICLE

An empirical snapshot of English corporate

insolvencies

Asad Khan

School of Law, University of Nottingham,

Nottingham, UK

Correspondence

Asad Khan, School of Law, University of

Nottingham, Nottingham, UK.

Email: mohammed.khan1@nottingham.

ac.uk

Abstract

The article presents an empirical study of English cor-

porate insolvencies initiated between December 2016

and December 2018. The research focuses on creditors'

voluntary liquidations (‘CVLs’), the most frequently

occurring insolvency procedure. It also looks at a few

administrations and compares findings with CVLs to

analyse which procedure may lead to better returns to

creditors. The article highlights key statistics such as

the average costs of procedures and the impact of the

prescribed part fund on distribution. Further, the study

assesses HMRC's potential debt recovery following its

return as a preferential creditor and discusses whether

Crown preference is justified. Given that data analysis

on the practicalities of distribution during insolvency is

lacking, the empirical study arguably helps fill a gap in

the literature. Essentially, the article provides quantita-

tive data on the practicalities of distribution and

assesses the impact of the order of priority on repay-

ment to creditors.

Note that this article is derived from the author's PhD research under the supervision of Professor Irit Mevorach and Dr

Sandra Frisby. A special thank you to Irit and Sandra for reviewing this article and supporting my research. Access to

the raw empirical data can be requested via: <http://doi.org/10.17639/nott.7329>.

Received: 24 February 2023 Revised: 15 August 2023 Accepted: 16 August 2023

DOI: 10.1002/iir.1522

© 2023 INSOL International and John Wiley & Sons Ltd.

Int Insolv Rev. 2023;32:447–473. wileyonlinelibrary.com/journal/iir 447

1|INTRODUCTION

Insolvency usually occurs when a company is unable to satisfy the debts it owes.

1

In 2019,

before the pandemic, 17,196 companies entered insolvency in the UK.

2

In 2022, this number

rose to 22,109.

3

Much has already been written about the function of insolvency laws, its objec-

tives, origins, and scope for reforms.

4

However, what has arguably been lacking is an empirical

analysis that assesses the practical impact of the hierarchy of priority on distribution to credi-

tors. Though empirical work in this area of law is growing, there is still scope for further

research.

National statistics highlight the number of companies that have gone insolvent but do not

go much further. They do not reveal the rate of return to the different types of creditors or the

average costs of procedures. Other sources have attempted to analyse data on UK insolvencies.

For example, an often cited report is by the Associates of Business Recovery Professionals (‘R3’)

that found that during distribution unsecured creditors received on average <7% repayment on

debt.

5

However, this report was from 2001, more than two decades ago, and arguably there is a

need for an update.

This paper assesses the rate of distribution in accordance with the hierarchy of priority and

provides an empirical snapshot of English corporate insolvencies.

6

The order of priority main-

tains that fixed charge holders are repaid first, followed by provisions for expenses of proceed-

ings, preferential creditors, contributions to the prescribed part fund, repayments to floating

charge holders, unsecured creditors, and lastly deferred claimants.

7

The article traces the debt owed and distributions made to the different types of creditors in

over a 1000 corporate voluntary liquidations (‘CVLs’) and a few administrations. The empirical

1

Kristen van Zwieten (ed), Goode's Principles of Corporate Insolvency Law (fifth edn) (Sweet & Maxwell, 2019), 2.

2

Insolvency Service, ‘Company Insolvency Statistics, Q4 October to December 2019’(National Statistics, 30 January

2020), 3.

3

Insolvency Service, ‘Commentary –Company Insolvency Statistics October to December 2022’(National Statistics,

31 January 2023), available at: <https://www.gov.uk/government/statistics/company-insolvency-statistics-october-to-

december-2022/commentary-company-insolvency-statistics-october-to-december-2022>.

4

For example, see Vanessa Finch and David Milman, Corporate Insolvency Law –Perspectives and Principles (third edn)

(Cambridge University Press, 2017), 32 and 56; Rizwaan Mokal, Corporate Insolvency Law –Theory and Application

(Oxford University Press, 2005) (‘Mokal 2005’), 33–35; Harry Rajak, Insolvency Law –Theory and Practice (Sweet &

Maxwell, 1993), 3; Elizabeth Warren, ‘Bankruptcy Policy’(1987) 54(1) University of Chicago Law Review 811; Axel

Flessner, ‘Philosophies of Business Bankruptcy Law: An International Overview’, in Jacob Ziegel (ed.), Current

Developments in International and Comparative Insolvency Law (Clarendon Press, 1994), 9; Gerard McCormack, ‘Apples

and Oranges? Corporate Rescue and Functional Convergence in the US and UK’(2009) 18 International Insolvency

Review 109; Sarah Paterson, Rethinking the Role of the Law of Corporate Distress in the Twenty-First Century (LSE Law,

Society and Economy Working Paper 27/2014), 5; Elizabeth Warren and Jay Westbrook, ‘Contracting Out of

Bankruptcy: An Empirical Intervention’(2005) 18 Harvard Law Review 1,197.

5

The Association of Business Recovery Professionals, Surveys of Business Recovery in the UK (ninth Survey 2001) (‘ABRP

Survey 9’), 7 and 18, available at: <http://www.spi.org.uk/9thc/>. This study was cited in Mokal 2005 (above note 5),

95. Also see Rizwaan Mokal, ‘Priority as Pathology: The Pari Passu Myth’(2001) 60(3) Cambridge Law Journal

581 (‘Mokal 2001’), 589.

6

For the hierarchy of priority, see Fidelis Oditah, ‘Assets and the Treatment of Claims in Insolvency’(1992) 108 Law

Quarterly Review 469. Also see Finch and Milman (above note 5), 453. Note that the empirical analysis in this article

reviews debts and distributions to creditors. This includes fixed charge holders, floating charge holders, preferential

creditors, and unsecured creditors. ‘Expenses of the procedure’and deferred claimants are not classified as creditors.

Expenses of proceedings were considered separately where appropriate.

7

Ibid. See sections 174 to 176, Insolvency Act 1986.

448 KHAN