Insolvencies rise in December with challenges set to continue for business owners

New figures from the Government Insolvency Service have shown that corporate insolvencies increased towards the end of 2021, a trend that is forecast to continue in 2022 with businesses being warned of a challenging year.

There were 1,486 corporate insolvencies in December 2021, a 20 per cent increase on December 2020’s figure of 1,237 and 33 per cent higher than the 1,120 insolvencies recorded in December 2019, prior to the onset of the COVID-19 pandemic.

December 2021 also saw 1,365 Creditors’ Voluntary Liquidations (CVLs), a 37 per cent increase on December 2020 and up 73 per cent compared to December 2019. Despite this, compulsory liquidations and other types of insolvencies remain lower than their pre-pandemic levels.

There are numerous factors being cited for the increases in corporate insolvencies and CVLs, the most immediate issue at the end of last year arguably being the introduction of Plan B COVID-19 measures in response to the emergence of the Omicron variant. This hit sales for many businesses over what would normally be their busiest period in the run up to Christmas.

Other contributors to increasing CVLS and insolvencies have been the need for companies to begin paying deferred tax bills and repaying government-backed loans issued under the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).

The government’s ending of temporary insolvency measures in October 2021 is also being cited as a major contributor to the rise in CVLs, with business owners opting to put their company into insolvency rather than face enforcement action from creditors.

As 2021 ends, business owners will continue to face the pressures of COVID-19-related disruption, unsustainable debt and the threat of creditor action. As a result of this, insolvencies and CVLs are being forecast to continue rising during 2022.

Other pressures impacting businesses at the start of the new year include supply chain issues, staff shortages and the rising costs of raw materials post-Brexit, issues that have hit sectors such as construction and haulage particularly hard. For smaller, high growth-potential businesses, meanwhile, rising debts and increasing costs are being exacerbated by a lack of investment, threatening their prospects for growth.

Oliver Collinge, leading restructuring and insolvency professional at PKF GM, said: “Many distressed businesses have managed to keep afloat by making use of the high level of government support available. However, as businesses have now started to repay BBLS and CBILS loans as well as deferred HMRC liabilities, pressure on cash is growing and we may continue to see the overall number of business failures increase.”

“Higher inflation, staff shortages, increasing energy prices, supply chain challenges and the need to repay Covid incurred debt, are all likely to lead to increased numbers of insolvencies during 2022.”

“These challenges will put multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before COVID, so it’s critical businesses act early and seek advice if they are struggling now, or think cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover.”


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