Insolvencies remain high as companies face “perfect storm”

Insolvency and restructuring firm R3 has said UK companies are facing a “perfect storm” as corporate insolvencies remain at high levels. Corporate insolvencies recently hit their second highest level in a decade, as businesses contend with rising costs, mounting debts and the ongoing impact of COVID-19 and Brexit.

During the third quarter of the year, government data showed that there were 5,595 seasonally-adjusted corporate insolvencies in England and Wales. While this was down 1 per cent compared to Q2 2022, it was 40 per cent higher than Q3 2021 and 28 per cent higher than Q3 2019 – prior to the onset of the COVID-19 pandemic.

Creditors’ Voluntary Liquidations (CVLs), meanwhile, stood at 4,800. While this was down compared to the 4,908 seen in Q2 2022 (helping to drive the overall quarterly reduction in corporate insolvencies), figures remain close to that level, which was the highest in 10 years and close to the highest figures seen since 1960.

As costs rise, consumer sentiment wanes amid the cost-of-living crisis and debts accrued during the pandemic begin to drag on businesses, the high level of CVLs indicate that many company owners are taking the decision to close their companies of their accord.

Commenting on the latest figures, R3’s North West chair Allan Cadman said: "Two years of economic turbulence are translating into a rise in corporate insolvencies. Government support paused rather than prevented the economic effects of the pandemic from leading to more businesses entering insolvency, but now that support has ended, we're starting to see numbers exceed pre-pandemic ones.

"Although the figures show a quarterly fall in corporate insolvencies – driven mainly by a reduction in Creditors’ Voluntary Liquidations and administrations, as well as the traditional summer slowdown in enquiries and appointments – they are still the second highest quarterly figures for corporate insolvencies in a decade.

"Despite the quarterly fall in Creditors’ Voluntary Liquidations, figures for this process are the highest for 10 years and close to the highest we’ve seen since 1960. Compulsory liquidations have also risen compared to the last quarter and are at the highest level since before the pandemic."

Cadman added: "The cause of these increases is a perfect storm of directors running out of road and creditors being able to pursue unpaid debts after the temporary legislation designed to deter this ended in the summer."


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