Wed, 03 Aug 2022 | BUSINESS NEWS
Company insolvencies soared in the second quarter of the year as UK businesses were hit by high costs, supply chain and staff issues and the end of government COVID-19 support packages. In new figures from the UK’s Insolvency Service, company insolvencies were up 81 per cent from Q2 2021 to 5,629, the highest figure for close to 13 years.
This huge rise was driven by a massive increase in creditors’ voluntary liquidations (CVLs). There were 4,908 CVLs during the quarter, the highest quarterly figure since records began in 1960, accounting for around 87 per cent of all insolvencies.
Compulsory liquidations increased to 368 (although this remained below pre-pandemic levels), 320 firms entered administration, 32 entered company voluntary arrangements (CVAs) and there was one receivership appointment.
John Cullen, Business Recovery Partner at Menzies, commented: “This is indication of the severe cashflow pressures that many businesses are facing, which are exacerbated by soaring energy and fuel costs. Inflation is testing the viability of businesses across industry sectors and with interest rates expected to rise again this week, the cost of borrowing is also set to rise.”
“At the same time as facing significant cost increases, many businesses are being hampered by supply and staff shortages, which are limiting revenues at a critical time, just as demand levels are recovering or back to pre-pandemic levels.”
The dramatic rise of CVLs has been described by Samantha Keen of EY-Parthenon as the “first tranche” in a long-expected wave of insolvencies. A surge in company collapses had been widely forecast to occur following the withdrawal of government COVID-19 support schemes, but the issue has now been further escalated by supply chain issues and soaring inflation.
R3 President Christina Fitzgerald said: “The increase this year – and the surge in CVLs in the final quarter of 2021 – suggests that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate. And while insolvencies still haven’t reached pre-pandemic levels, this is unlikely to remain the case for long.”
Given the worsening situation many businesses find themselves in, many are forecasting that the recent surge in insolvencies is set to continue and, most likely, intensify over the coming months as costs rise, markets adjust to ongoing volatility and consumer confidence deteriorates amid the cost-of-living crisis.
EY-Parthenon's Samantha Keen said: “We expect further insolvencies in the year ahead among larger businesses who are struggling to adapt to challenging trading conditions, tighter capital, and increased market volatility."
“The impact from the slowdown in consumer spending is likely to be felt in the autumn, just as many retail and hospitality businesses gear up for the all-important ‘golden quarter’. These businesses, which are highly sensitive to fluctuations in consumer demand, will be most vulnerable.”
The rapid increase in insolvencies will inevitably create a raft of opportunities for buyers to acquire businesses that have fallen into financial distress amid exceptionally challenging market conditions, but are otherwise viable. Find out more about using distressed acquisitions to grow your business.
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