Directors advised to act now as economic climate drives increase in insolvencies

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  • Likely to be the start, not the peak, of insolvencies
  • Headwinds likely to cause issues even for better-performing businesses in the next 12 months
  • Mini Budget support futile if cost of borrowing goes up 

Corporate Insolvencies

 Insolvency figures released for September 2022 by the Government’s Insolvency Service showed the number of company insolvencies in September 2022 was 1,679. This is 16% higher than in the same month in the previous year (1,453 in September 2021), and 11% higher than the number registered three years previously (pre-pandemic; 1,508 in September 2019).

In September 2022 there were 1,379 Creditors’ Voluntary Liquidations (CVLs), 4% higher than in September 2021 and 25% higher than September 2019. Numbers for other types of company insolvencies, such as compulsory liquidations, remained lower than before the pandemic, although there were over 6 times as many compulsory liquidations in September 2022 compared to September 2021.

Leading restructuring and insolvency professional Oliver Collinge from PKF GM in Leeds said:

“The large rise in corporate insolvency numbers is not surprising compared to this time last year. But a material increase on pre-pandemic levels, as we are seeing now, is concerning. Unfortunately I think this is the start, not the peak, of rising insolvencies.

Many distressed businesses managed to keep afloat through Covid by using the high level of government support available. Most businesses are now repaying BBLS or CBILS loans and many are also still repaying HMRC liabilities deferred during the pandemic, and rising input costs are adding to these cash flow pressures.”

Challenging times ahead as cash flow pressure on businesses grows and even better-performing businesses won’t be immune

  Oliver continued: 

“The current headwinds will create challenges even for some better-performing businesses, not only those that were already in survival mode. The Bank of England has clearly indicated that there are more interest rate rises to come, the cost-of-living crisis has led to the biggest fall in real pay on record and the price of energy remains very high, although the government’s intervention has made a significant difference. All of these factors point to an economy sliding into recession. Pressure on cash continues, and unfortunately, we expect to see heightened levels of business failures for some time to come.”

“Whilst the Covid loans, support packages and interventions staved off many business closures; the repayments on these loans, together with the worsening macro-economic climate means many businesses are beginning to experience severe cash flow pressure. It’s critical businesses act early and seek advice if they are struggling now or think cash flow may be squeezed in the coming months. The earlier they act, the more options they’ll have to secure the business’s long-term survival.”

Creditors’ Voluntary Liquidations (CVLs)

  The increase is primarily driven by Creditors’ Voluntary Liquidations (CVLs), where directors have chosen to place their business into an insolvency process. There were 1,379 CVLs, which is 4% higher than in September 2021 and 25% higher than in September 2019. PKF GM thinks this may partly be because creditors can now take enforcement action, forcing directors to take pre-emptive action. There is also significant anecdotal evidence that many of these liquidations involve small companies which had taken out Bounce Back Loans and are now unable to repay them.

Company directors urged to act now

  Oliver Collinge added:

“There are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy; don’t leave it too late. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.”

“For struggling businesses, it’s not too late to begin negotiations with landlords and creditors to develop manageable repayment plans. Will revenues be high enough to support your cost base? Will cash flows be sufficient to deal with the additional debt burden (both formal and informal) that has accrued during Covid? Perhaps a CVA is something which should be considered or, where you may need to take the difficult decision to make redundancies to survive, consider applying for government funding to meet the short-term cash impact of this.”

*Of the 1,679 registered company insolvencies in September 2022:

  • There were 1,379 CVLs, which is 4% higher than in September 2021 and 25% higher than in September 2019;
  • 204 were compulsory liquidations, which is 538% (6.4 times) higher than September 2021, but 10% lower than September 2019;
  • 11 were CVAs, which is 8% lower than September 2021 and 50% lower than September 2019;
  • There were 85 administrations, which is 5% higher than September 2021 but 47% lower than September 2019; and
  • There were no receivership appointments.