Fri, 22 Apr 2022 | BUSINESS NEWS
Company insolvencies in the UK rose by 39 per cent last month as businesses with heavy debt burdens saw their financial issues exacerbated by issues such as rising interest rates, growing energy costs and the withdrawal of government financial support.
According to official figures from the UK’s Insolvency Service, there were 2,114 company insolvencies in March 2022, a 39 per cent increase on February 2022 and up 34 per cent compared to March 2019, prior to the start of the COVID-19 pandemic. Overall, the first quarter of 2022 has seen 5,197 company insolvencies, the highest quarterly figure since Q3 2017.
The bulk of these were made up of Creditors’ Voluntary Liquidations (CVLs), with 1,844 CVLs in March 2022, more than twice the number of CVLs recorded in March 2021 and up by 62 per cent on figures from March 2019.
This surge in CVLs has been described by Jeremy Whiteson of restructuring and insolvency firm Fladgate as being “predictable” in the wake of the withdrawal of government support and the ending of restrictions on creditors and landlords taking action against businesses.
Tax and advisory firm Mazars, meanwhile, said that recent increases in interest rates had made it more expensive for businesses to service their debts, likely pushing many that had borrowed money under government-backed schemes during the pandemic into insolvency.
Aside from debts accrued during the pandemic, businesses have also had to contend with exponential increases in energy costs this year, a situation that has been worsened by the ongoing conflict in Ukraine.
Mazars Partner Rebecca Dacre commented: “Businesses that were just hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge.”
“Between interest rates and inflation, this is the most difficult period for businesses since the height of the pandemic. This time they are having to manage without Government support. UK businesses will be hit by the ‘cost of living crisis’, just as consumers will be.”
Mazars warned that more businesses will be poised to fall into insolvency over the coming months, with a moratorium on winding-up petitions having ended on March 31. Following this, creditors are once again able to apply to make a business insolvent over unpaid debts.
A widespread observation among several experts is that the “wave of insolvencies” that has long been predicted to follow the withdrawal of government support and protection is finally happening.
According to Margaret Carter, Restructuring and Insolvency Director at Azets: “The true impact of the of the pandemic now appears to be coming to fruition, following an extended period of business grants and government backed lending propping up businesses.”
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