Casualties of
the recession:
insolvencies
by industry
Corporate insolvencies reached record levels during 2008 and 2009 as the recession claimed businesses in every industry.
In order to establish which industries have suffered most, R3 has tracked the total number of insolvencies in each industry in
England and Wales throughout the recession, and has compared the numbers of insolvencies in each industry with the number of
enterprises within them before the recession began. Our report concludes with a look at overall insolvency trends from previous
recessions.
Executive summary
• The ‘real estate, renting and business activities’
industry experienced far more insolvencies than
any other industry during the recession (12,050
insolvencies). The construction industry, and
the wholesale and retail industry have also
experienced very high levels of insolvencies (at
7,184 and 6,077 respectively), followed relatively
closely by the manufacturing industry (4,664). The hotels and restaurants industry, for example,
appears to have been worst affected, with 1.7%
of enterprises - close to two in every hundred becoming insolvent during the recession. The
manufacturing industry follows close behind, at
1.6%. • Figures from the 1980s and the 1990s recessions
suggest that insolvencies continue to rise after
• In most key industries, the ‘peak’ of insolvencies
a recession officially ends, culminating in an
occurred in the first quarter of 2009. A notable
eventual ‘peak’ some time afterwards. In the
exception is the real estate industry, which
early 1990s recession, for example, the peak in
experienced a peak in the last quarter of 2008; which
corporate liquidations was recorded five quarters
is perhaps unsurprising given that the economic
(18 months) after the return to growth. Although
crisis began in this industry. the 2008/9 recession has exhibited certain unique
characteristics, Insolvency Practitioners still expect
• The number of insolvencies as a proportion of the
to
see an ‘insolvency lag’. Even though businesses
total number of enterprises stands at between
in many industries have suffered throughout the
0.1% and 1.7% in each industry. The similarity in
duration
of the most recent recession, the worst
figures indicates that the ‘pain’ of the recession has
may
in
fact
be yet to come as the recession’s
been fairly evenly spread, although clearly some
aftermath continues to take its toll on weakened
industries have experienced more insolvencies as a
proportion of the number of enterprises than others. businesses.
Section 1 Which industries have experienced the
highest number of insolvencies?
The ‘real estate, renting and business activities’ industry experienced far more insolvencies than any other industry during the
recession, with 12,050 insolvencies from the second quarter 2008 to the end of the fourth quarter 2009. The construction industry
and the wholesale and retail industry have also experienced very high levels of insolvencies - at 7,184 and 6,077 respectively followed relatively closely by the manufacturing industry (4,664).
The following chart shows the number of insolvencies experienced by each of the main industries during the recession:
R3 President Steven Law interprets the results....
Real estate
‘The real estate sector experienced a far greater number of insolvencies during the period of recession than any other
industry, with over 12,000 insolvencies over this period. Due to the availability of credit, many speculative building and
development projects took place in the period leading up to the recession, which resulted in over-supply when the
recession took hold. When the ‘credit crunch’ began to bite, it became more difficult to get a mortgage and consumer
spending declined.
People and businesses were less inclined to move, leaving the real estate companies that had
commissioned development projects unable to sell the property on – flats, houses, shops and office developments
remained empty. As creditors started to recover the money these companies had borrowed to help cover the costs of
developments, many real estate companies fell into formal insolvency. As in most recessions, the real estate industry was
the key industry to be hit first by the credit crunch - indicated by its insolvency peak occurring a quarter earlier than the
other main sectors – and its demise, in turn, went on to affect other key industries.
‘The sheer size of the sector may also go some way to explaining the extreme levels of insolvencies it experienced. The
real estate sector contained far more enterprises than any other before the recession began – with over one million
enterprises, compared to just over 500,000 in the wholesale and retail industry, for example - which provides a degree of
context.’
Casualties of the recession: insolvencies by industry
page 2 of 7
R3 President Steven Law interprets the results....
Construction
‘The construction industry experienced high levels of insolvencies during the recession, with the second highest
insolvency level of all industries (7,184 insolvencies). The construction industry’s fate was inextricably linked to
that of the real estate sector and it was deeply affected by the ripple effect of the downturn in the real estate
sector. Before the recession, construction boomed in significant part because of the number and scale of projects
commissioned by companies in the real estate sector - office developments, blocks of flats etc. The number of
companies in the sector was very high, at just under one million enterprises. When the building work dried up as the
real estate sector suffered, there were too many companies competing for the construction work available and many
construction companies became insolvent. Some companies tried to hold on by undercutting competitors’ prices
when tendering for work, even to the point of bidding at a loss – but this was unsustainable as the recession wore
on. In short, the construction industry naturally contracted as the building work which had been plentiful before
the recession, dried up. Although many public sector construction projects were continued during the recession,
whether the Government’s budget cuts will enforce fresh constraints on the construction industry remains to be seen.’
Wholesale and retail
‘The wholesale and retail industry experienced a considerable number of insolvencies during the recession, with the third
highest insolvency level of all industries (6,077 insolvencies). The retail industry is traditionally vulnerable in challenging
economic times given its dependence on consumer spend As recessions take hold, saving becomes more attractive,
people start to tighten their belts and cut back on non-essential spending. Industries, like retail, that are reliant on consumer
spending see a reduced demand and can slip into insolvency – which, in turn, affects their suppliers - wholesalers, and
eventually, manufacturers.’
Section 2 Insolvencies as a proportion of total
number of enterprises in each industry
The chart below shows the total number of enterprises in each industry at the start of 2008 to the number of insolvencies that have
occurred within them during the recession.
The number of insolvencies as a proportion of the total number of enterprises stands at between 0.1% and 1.7% in each industry.
The similarity in figures indicates that the ‘pain’ of the recession has been fairly evenly spread, although clearly some industries
have experienced more insolvencies as a proportion of the number of enterprises than others.
The hotels and restaurants industry appears to have been worst affected, with 1.7% of enterprises - close to two in every hundred
- becoming insolvent during the recession. The manufacturing industry follows close behind, at 1.6%.
Casualties of the recession: insolvencies by industry
page 3 of 7
Some industries contained more enterprises than others before the recession began, so the number of insolvencies as a
proportion of enterprises is much smaller; likewise, certain industries had fewer enterprises to begin with, and therefore the effect
of insolvencies through the recession is proportionately greater.
For example, while the real estate industry experienced the greater number of insolvencies, the industry experienced a smaller
proportion of insolvencies to number of enterprises than many other industries (1.1%) because there were such a large number
of real estate enterprises before the recession (there were 1,114,475 real estate enterprises at the start of 2008, compared to just
145,805 hotels and restaurants). The construction industry exhibits a similar trend to real estate, with the industry experiencing
the second highest numbers of insolvencies, but the seventh highest insolvencies as a proportion of number of enterprises.
N.B. The industry classifications for the number of enterprises (held by the Department for Business Innovation and Skills) differ slightly to those used to classify insolvency procedures by
industry (held by the Insolvency Service), so certain categories have been combined or removed from the analysis, e.g. in the Insovlency Service, Agriculture, Hunting and Forestry is a distinct
category from Fishing; while under the classifications used by the Department for Business Innovation and Skills for the total number of enterprises they have been merged; and while the
Insovlency Service have a category termed ‘Extra-territorial organisations and bodies’, the classifications used by the Department for Business Innovation and Skills for the total number of
enterprises do not include this as a category.
R3 President Steven Law interprets the results....
Hotels and restaurants
‘The hotels and restaurant industry also experienced a proportionately significant number of insolvencies (at 2,448) given
that the number of enterprises within the industry was significantly smaller than others before the recession began (at just
145,805 enterprises). Like the wholesale and retail industry, the hotels and restaurants industry tends to be vulnerable
because of its dependence on consumer spend. They also suffered in the recession because of a lower demand from
businesses due to reduced activity and cost cutting on, for example, conference spend.’
Manufacturing
‘The manufacturing industry was fairly small before the recession began (with 299,445 enterprises at the start of 2008).
It then suffered a significant number of insolvencies during the recession (4664 insolvencies; the fourth highest level
of all industries). The comparative effect on the industry was therefore considerable. As consumer spending dried up
and construction projects faded, there was a consequent decline in demand for products; in addition, many businesses
resorted to de-stocking - selling what the stock they already had rather than buying new products. Fortunately for the
businesses in the industry, manufacturing is traditionally one of the first industries to start recovering when economic
growth returns as the effects of a rise in demand and re-stocking are quickly felt. The weaker pound at present should
also provide a fillip for manufactures who sell their products abroad, as these goods become more competitively priced
for buyers.’
Section 3 Insolvency peaks for each industry
In the industries that have experienced the highest number or greatest proportion of insolvencies, the ‘peak’ of insolvencies
occurred in the first quarter of 2009 (highlighted in yellow in the table below). A key exception is the real estate industry, which
experienced a peak in the last quarter of 2008.
Total number of insolvencies
Industry (by
Government
category)
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Construction
784
883
1014
1209
1199
1070
1025
Hotels and
restaurants
302
344
347
413
357
313
372
Manufacturing
546
572
626
811
786
705
618
Real estate,
renting and
business activities
1191
1473
2339
1799
1807
1774
1667
Wholesale
and retail
774
740
941
1084
919
831
788
Yellow highlight = peak in insolvencies
Casualties of the recession: insolvencies by industry
page 4 of 7
Section 4 Previous recessions
Figures from the 1980s and the 1990s recessions suggest that insolvencies continue to rise after a recession officially ends,
culminating in a ‘peak’ some time afterwards. In the early 1990s recession, for example, the peak in corporate liquidations was
recorded five quarters (18 months) after the return to growth.
The ‘insolvency lag’ is a result
of two key factors:
• creditors tend to become
more aggressive when the
financial situation starts to
improve because they stand
to achieve greater returns;
• even though the economy
begins to pick up, many
businesses will have drawn
heavily on their reserves to
help them stay afloat thus
far, but fighting a rearguard
action for so long leaves them
without the reserves they
need to grow, and damages
their prospects for obtaining
funding.
Although this recession has
exhibited
certain
unique
characteristics,
Insolvency
Practitioners
expect
the
‘insolvency lag’ to follow the
period of official recession. So
even though businesses in
many industries have suffered
throughout the recession, the
worst may in fact be yet to come
as its aftermath continues to take
its toll on weakened businesses.
R3 President Steven Law explains the ‘insolvency lag’:
‘The lag is most simply explained by the fact that it takes time before any return to growth is translated into tangible relief for
business owners and individuals. Though the overall economic outlook may be brighter, it is usually some time before creditors
begin to extend credit at pre-recession levels or before employment and spending pick up.’
Casualties of the recession: insolvencies by industry
page 5 of 7
Appendix Insolvencies through the recession:
industry by industry, quarter by quarter
The table below shows the numbers of insolvencies in each industry during each quarter of the recession. The figures are
calculated by adding together Insolvency Service figures for the numbers of administrations, CVLs, compulsory liquidations, CVAs
and receiverships in each industry during each quarter (from the second quarter of 2008, through to the end of 2009 - the period
of recession).
Total number of insolvencies
Industry (by Government category)
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Agriculture, hunting and forestry
22
21
19
24
23
24
18
Construction
784
883
1014
1209
1199
1070
1025
Education
37
32
33
32
33
44
43
Electricity, gas and water supply
12
11
23
13
25
11
7
Extra-territorial organisations and bodies
2
1
2
1
3
1
1
Financial intermediation
70
106
139
107
139
93
105
Fishing
5
5
2
2
2
1
2
Health and social work
47
45
44
50
54
60
53
Hotels and restaurants
302
344
347
413
357
313
372
Manufacturing
546
572
626
811
786
705
618
Mining and quarrying
3
8
11
7
5
7
9
Other
705
755
747
694
656
604
594
Other community, social and personal
service activities
243
340
333
381
371
335
319
Private households employing staff and
undifferentiated production activities
3
2
3
6
4
2
6
Public administration and defence;
compulsory social security
8
9
9
5
10
12
6
Real estate, renting and business
activities
1191
1473
2339
1799
1807
1774
1667
Transport, storage and communication
247
288
319
299
273
254
278
Wholesale and retail
774
740
941
1084
919
831
788
Casualties of the recession: insolvencies by industry
page 6 of 7
Appendix Insolvencies compared to number of
enterprises in each industry
The table below shows an indication of the numbers of insolvencies in each industry during the recession compared to the total
number of businesses within it at the start of 2008.
Name of sector (Insolvency
Service categories for
insolvencies within each
industry)
Total number of
enterprises in
England and Wales as
listed in March 2008
Total number of
insolvencies in
England and Wales,
by sector during the
recession (Q2 2008 to
Q4 2009)
Approximate
percentage of
insolvencies to total
number of enterprises
Hotels + restaurants
145,805
2448
1.7
Manufacturing
299,445
4664
1.6
Mining and Quarrying; Electricity,
Gas and Water Supply
11,135
152
1.4
Wholesale and Retail
528,325
6077
1.2
Financial Intermediation
68,985
759
1.1
Real Estate
1,114,475
12050
1.1
Construction
910,550
7184
0.8
Transport, Storage +
Communication
268,945
1958
0.7
Other Community, Social and
Personal Service
461,955
2322
0.5
Education
156,470
254
0.2
Health and Social work
235,010
353
0.2
Agriculture, Hunting and
Forestry; Fishing
133,395
170
0.1
Methodology note
R3 has tracked the number of insolvencies throughout the recession in each of
the main industries in England and Wales. The figures are calculated by adding
together Insolvency Service figures for the numbers of administrations, CVLs,
compulsory liquidations, CVAs and receiverships in each industry from the second
quarter of 2008, through to the end of 2009 (the period of recession). During
this time, some companies may have moved from one insolvency procedure to
another (e.g. from a receivership into liquidation) so there may be instances where a
company is counted twice - we believe these instances are very low in number and
unlikely to affect overall trends.
Casualties of the recession: insolvencies by industry
About R3
R3, the trade body for
Insolvency Professionals,
represents over 97% of
Insolvency Practitioners. R3
members are trained and
regulated accountants and
lawyers who have extensive
experience of helping
businesses and individuals in
financial distress.
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