Q1 2025 insolvency claims activity – a word of warning for D&Os and their insurers?

The latest data on the number of winding up petitions in the Insolvency and Company Court provides insights into the recent increase in insolvencies and offers a hint as to the sectors that may be impacted most by claims against the former directors of insolvent companies.

Since 2020, the number of insolvencies has been steadily rising, with the last 6 months seeing a growth in the number of winding up petitions filed in the Insolvency and Companies Court.¹ There was a rise of 573 petitions filed compared from Q3 to Q4 2024, with the numbers seen in Q1 2025 being similar to the preceding quarter. 

There are also reports of Q1 2025 having been one of the busiest periods for the Insolvency Courts with more than 3,700 scheduled hearings. This was approximately a 25% increase compared to the same quarter in 2024.

It is likely the increase in firms finding themselves in such situations is due to rising operating costs over the last few years, such as higher energy prices and the hike in National Insurance Contributions and minimum wage. It is also possible that the increase will continue amid the current global tariffs war.

When taking a closer look at the data available from Q1 2025, there are several trends which emerge, and ones which directors and officers (D&O) insurers could view as indications of potential claims to come.

HMRC 

In Q1 2025, 2,093 winding up petitions were filed at the Insolvency and Company Court. Of these, over half were issued by HMRC. It appears that the inability of some companies to pay tax bills has been the final nail in the coffin for some firms in financial distress. It is notable that there has been a jump from the 630 winding up petitions filed by HMRC in Q3 2024, compared to the 1,069 petitions filed in Q1 2025. 

One way in which company directors may have engaged in wrongful trading (thus leaving themselves open to claims) is by spending VAT collected, or PAYE or National Insurance contributions deducted from pay, and not then having the monies available to pay HMRC when the tax is due. As shown by the data available, HMRC may take steps to file a winding up petition against firms that have not paid their liabilities. If this has occurred, and an insolvency practitioner (IP) has been appointed, the former D&Os may find themselves on the receiving end of questions and requests for documents from the IPs.  

We will have to see whether the high number of winding up petitions issued by HMRC results in an increased number of claims against the former directors.

Construction

Companies in the construction sector saw the most winding up petitions filed against them in Q1 2025. Of the 583 claims, 230 were brought by HMRC, continuing the theme of companies being unable to pay tax bills as being the last straw.

As previously identified by our construction team, firm insolvencies in the construction industry remain high and have included some high profile insolvencies like ISG which is having big knock-on effects for those further down the supply chain.

We expect that D&O insurers providing cover for directors in the construction industry will be mindful of the risks facing this sector. 

Consumer products

Following closely behind construction, the consumer products sector also saw a significant number of winding up petitions in Q1 2025. 

The consumer products sector has also faced problems due to the global supply chain issues, as well as having to weather the impact the cost-of-living crisis has had on the spending power of consumers. These factors have likely contributed to the number of winding up petitions filed against companies in the consumer products sector, where such firms have been unable to pay creditors. Again, we expect that D&O insurers may see an increase in claims relating to directors of companies in this area due to the volume of winding up petitions the sector is seeing.

It remains to be seen what impact the current global tariffs war will also have on companies in the consumer products sector. D&Os of companies facing financial difficulties need to be mindful that creditors' interests arise when directors know, or should know, that the company is insolvent or bordering on insolvency, or that insolvent liquidation or administration is probable.

Comment

There are several challenges facing the construction and consumer products sectors at present, leading to an increased number of insolvencies. This in turn could result in a higher number of claims and/or regulatory action being taken against the former directors of these companies. 

It remains to be seen whether an increase in insolvency claims activity will have an impact upon the D&O market conditions and whether we may see insurers increase premiums and limit their risks accordingly. 

1. According to Solomonic data pulled on February 9, 2025.