As insolvencies continue to rise among UK companies, there have been further warnings that corporate distress is set to spread from smaller companies to larger businesses. While smaller companies have, so far, largely borne the brunt of rising insolvencies, factors such as rising interest rates and soaring inflation are expected to see this trend spread to bigger firms.
With insolvencies rising, liquidations have increased to pre-pandemic levels in the UK and Begbies Traynor Executive Chair Ric Traynor has said that growing distress among larger businesses mean that administration are likely to overtake pre-pandemic figures before the end of 2023.
Despite a 4 per cent decline compared to the fourth quarter of 2022, insolvency figures during the first quarter of 2023 stood at 5,747, up 18 per cent from the same period a year earlier. Administrations, meanwhile, were up 16 per cent year-on-year during the first quarter, but fell 12 per cent from Q4 2022.
While insolvencies and administrations have both fallen since the final quarter of 2022, Traynor says that the firm “expect to remain busy for the next few years at heightened levels of insolvencies”, citing inflation and interest rates, as well as the ongoing impact of Brexit and the COVID-19 pandemic.
Traynor has predicted that the construction will continue to drive UK insolvencies, commenting that the sector was “always the biggest sector” for insolvencies. According to recent Insolvency Service figures, construction has been the worst affected by rising distress, accounting for nearly a fifth of all UK insolvencies in the 12 months to the end of Q1 2023.
Ric Traynor explained that the sector often operates with extremely fine profit margins and that this had been impacted by inflation and rising interest rates. The sector has also been hit by rising material and labour costs and supply chain disruption, while smaller firms have also been hit by slower payment times amid the ongoing economic uncertainty.
Aside from construction, Traynor also said that the hospitality and retail sectors would generate insolvencies, with businesses in both industries vulnerable due to declining consumer confidence at a time when inflation is pushing prices higher.
Another restructuring firm, FRP Advisory, has also forecast higher administrations in the 2024 financial year, as a result of inflation, interest rates, Brexit, the end of pandemic support measures and ongoing supply chain issues.
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