With many analysts predicting that 2024 will produce the highest number of corporate failures since 2004, all businesses and sectors will be put to the test.

While inflation appears to have peaked, there is still a considerable knock-on effect.

Consumer prices are expected to be at least 20% higher than three years ago, so spending habits within UK households will need to be tightly managed well into 2024, which will impact corporate behaviour and confidence.

What we’re seeing in our funding and restructuring teams is that the cost of borrowing is significantly higher at the moment, and certain lenders and investors have retreated from some sectors. This will most likely result in clients from specific sectors being placed on watchlists and a decline among lenders to even make an offer of funding when invited.

The upcoming UK general election and overall sluggish performance of the economy will present challenges that some businesses will fail to meet

Macroeconomic events throughout the world will continue to impact energy and food prices, which could even reverse the current inflation trends.

The upcoming UK general election and overall sluggish performance of the economy will also present challenges that some businesses will fail to meet. Those most at risk have been in ‘zombie’ mode since the pandemic, when creditors couldn’t take action and government-backed rescue packages were readily available at low rates.

Also, once there are a few large failures in a specific sector, the landscape changes materially – even if the business is not trading with the initial casualty. Confidence and credit terms seep away, leaving businesses occasionally exposed to a rather swift insolvency. Next, we consider some key sectors.

Challenging time for
real estate

Real estate has gotten used to cheap debt and has suffered a large corporate failure with Signa, so challenges will remain in place for a while. We have seen a few instances of bridging loan providers not being able to ‘bridge’ to a new vanilla type of lender. This means having to deal with the distressed borrower and underlying assets for much longer than first envisaged.

From a PE point of view, UK real estate in 2023 was a year to forget. Denominator effects coupled with rising interest rates left markets stagnant.

However, 2024 brings fresh hope and opportunity. The debt finance gap and decarbonisation requirements could prove to be the start of a new cycle for value-add investors.

Struggle continues 
in construction

As is often the case during turbulent economic times, certain businesses in this sector are struggling to pass on the increasing costs of labour and materials, being over-reliant on obtaining good payment terms with the tier-one contractors.

In 2023, about 20% of petitions issued were in construction – by far the largest of any sector. Working for those that pay on time and adopting cost-plus models remains key in this type of market.

We have seen first-hand £50m+ turnover businesses falling off a cliff in a matter of weeks

At Leonard Curtis, we have seen first-hand £50m+ turnover businesses falling off a cliff in a matter of weeks when the right controls and management are not in place. Once the funds are no longer available to pay key suppliers, subcontractors and staff, it is often very difficult to save the company from a process.

One route to rescue we have seen recently is the main customer opting to save the business in trouble because it plays a critical role in their own firm’s success.

Significant failures in logistics

A sluggish construction sector is never good news for logistics. 

So, unexpectedly adding their problems to the challenges that Brexit brought has resulted in significant failures in this sector. The demand for transport and storage is simply not at the level that the industry had expected by now.

Forecasting demand is challenging for operators and we expect to see continued consolidation in the sector.

More consolidations in the regulated business world?

With recent appointments over law firm Axiom Ince and wealth management company Blackstone Sington, we continue to see failures in the regulated space. 

The causes are often not the same and not always something that the management could have foreseen. In addition, the regulators often receive a lot of unfair criticism, despite providing a service we all rely on, in arguably the most fast-paced, innovative and challenging of sectors where bad actors often look to operate.

Early engagement with specialist and proven advisers in this sector is essential, with specific regulations being in place for any rescue attempt. It has been reassuring to see many firms act proactively in developing well thought-through wind-down plans that consider the practical steps and aren’t just made up of a list of legal requirements.

It will be interesting to see how much consolidation happens in the next 12 months and how many distressed investment firms find buyers either before or through an insolvency event.

With familiar headwinds expected in 2024, there will be a high level of failures, which will see astute and well-advised businesses ultimately thrive in the long term. We expect our restructuring, advisory and funding teams to have a busy year ahead. 

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About Leonard Curtis
Leonard Curtis is a multidisciplinary professional services group. From its 28 regional offices across the UK and the Channel Islands, it employs 300 people, specialising in restructuring and insolvency, funding and legal services for SMEs, larger corporates and their advisers.