Corporate insolvencies up 71% with construction and retail sectors worse hit
The latest government insolvency statistics for Q3 2002 show a significant increase in the volume of companies in distress. There were 16,105 corporate insolvencies in the first three quarters of 2022 compared to 9,433 during the same period in 2021 – a 71% rise.
Quarterly insolvency statistics for July to September (Q3) 2022 also show corporate insolvency appointments are currently over 50% higher than levels in 2021.
Between 1 July and 30 September 2022 (Q3 2022), there were 5,595 registered company insolvencies comprising 4,800 creditors’ voluntary liquidations (CVLs), 492 compulsory liquidations, 274 administrations and 29 company voluntary arrangements (CVAs).
There were no receivership appointments.
The three industries that experienced the highest number of insolvencies in the 12 months ending Q3 2022 were:
Construction (3,949, 19% of cases where industry-type was available);
Wholesale and retail trade; repair of motor vehicles and motorcycles (2,910, 14%);
Accommodation and food service activities (2,478, 12%).
These were also the three sectors with the most insolvencies in the 12 months ending Q3 2021.
One in 213 active companies (at a rate of 46.9 per 10,000 active companies) entered liquidation between 1 October 2021 and 30 September 2022. This was an increase from the 29.3 per 10,000 active companies that entered liquidation in the 12 months ending 30 September 2021.
Leading restructuring and insolvency professional Oliver Collinge from PKF GM said: “The large rise in corporate insolvency numbers is not surprising nor the industry sectors most impacted, given the cost of living crisis. Many distressed businesses managed to keep afloat through Covid by using the high level of government support available. Many businesses are still repaying BBLS or CBILS loans and HMRC liabilities deferred during the pandemic; 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 worsening economic climate, coupled with residual debt accrued during Covid, 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)
CVL numbers rose between Q2 2021 and Q2 2022 and the two most recent quarters (Q2 and Q3 2022) have seen the highest number of CVLs in the time series going back to 1960.
CVLs are where directors have chosen to place their business into an insolvency process. 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.”