Wed, 18 Jan 2023 | BUSINESS NEWS
New figures from the Insolvency Service have shown that corporate insolvencies increased sharply in December 2022, as UK companies struggled with rising costs, plummeting consumer sentiment and the end of COVID-19-related government support.
The Insolvency Service reported that there were 1,964 company insolvencies in December 2022, up 32 per cent from December 2021 and 76 per cent higher than the same month in 2019, prior to the onset of the COVID-19 pandemic.
The sharp rise was driven by an increase in creditors’ voluntary liquidations, which rose to 1,659 last month, up 22 per cent from the same month in 2021 and over twice as high as figures for December 2019. Compulsory liquidations, meanwhile, were over three and a half times as high as in December 2021 at 183, while PwC reports that 346 winding up petitions were made in December 2022.
Winding up petitions are widely viewed as a major indicator of approaching financial distress, reflected by the fact that the current rising wave of insolvencies was preceded by close to 3,000 winding up petitions in the first 11 months of 2022, more than three times as many as were issued during the same period of 2021.
Businesses in the UK are facing a myriad of challenges at the outset of 2023, with inflation standing above 10 per cent, interest rates at 3.5 per cent (the highest level in 14 years), soaring costs for raw materials and staff, huge increases in energy bills and the cost-of-living crisis driving consumer sentiment down.
Many firms are also struggling with large debt piles they amassed during the COVID-19 pandemic, when the government provided loans to struggling companies and protected businesses from insolvency action by their creditors. Payment on these loans is now due, while protections against creditor action have been lifted, as reflected by the increase in compulsory liquidations.
Another factor behind the increase in voluntary liquidations, cited by PwC’s Head of Insolvency David Kelly, is the fatigue many owners will be feeling as the current crisis bites, coming in the wake of Brexit, nearly three years of COVID-19 and long-running supply chain disruption. According to Kelly, exhaustion from these combined factors may be contributing to owners “raising the white flag for insolvency”.
Looking ahead, the challenges facing UK businesses are not expected to abate in the short term, with widespread forecasts that insolvencies will continue to rise. David Kelly commented that “company directors are under no illusions about the challenges in store this year”, despite December’s insolvency figures actually representing a slight decrease from the numbers for November 2022.
Kelly pointed out that the 2022 World Cup, as well as Christmas and New Year, will have provided a slight boost for some companies during the end of November and much of December, especially in sectors such as leisure and retail, which are otherwise among the hardest hit by the current crisis.
However, insolvencies are ultimately showing no signs of a sustained decrease, with financial distress still widely expected to grow in key sectors such as hospitality, retail and construction, creating acquisition opportunities for buyers with the cash to target M&A activity.
Find out how the struggles of UK businesses are attracting international buyers.
Read more on developing M&A trends for 2023.
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